India's largest mutual fund, Unit Trust of India, has started to draw investors back less than two years after a spate of trading scandals pushed the state-run money manager to the brink of collapse.
A turnaround by UTI, which boasts some 1 crore (10 million) investors, could boost confidence in the mutual fund industry in a country where the vast majority of people favour gold or fixed-rate bank deposits.
Total funds managed by the industry stood around Rs 89,200 crore (Rs 892 billion) at the end of April, equivalent to four per cent of India's GDP, according to the Association of Mutual Funds of India. UTI has Rs 43,500 crore (Rs 435 billion) in assets.
"We have attracted Rs 2,800 crore (Rs 28 billion) in the past four months," K Madhava Kumar, UTI's president, business development and marketing, told Reuters Friday.
About two years ago, UTI was forced to impose severe curbs on withdrawals after a stock market scandal and a cash crunch triggered a run on the trust's funds.
"A strong and professionally run UTI is important because of its reach and ability to mobilise retail savings," said Dhirendra Kumar, managing director of fund tracking firm Value Research.
He estimated that about 80 per cent of Indian investors in mutual funds are with UTI, with the average size of a unit-holder around Rs 50,000.
Other funds do not have the reach to match UTI, which has more than 65,000 sales agents, while some private funds target only those who can invest a minimum of Rs 10 lakh (Rs 1 million).
UTI's assets are still more than a quarter below the Rs 60,000 crore (Rs 600 billion) it had two years ago. The second biggest fund, Prudential ICICI Mutual Fund, had Rs 10,600 crore (Rs 106 billion) under management at the end of April, according to AMFI data.
New-look UTI
"The single biggest change that has happened to us is that we are now a pure mutual fund and no longer a financial institution which also managed funds," UTI's Kumar said.
UTI has moved to a plush new glass-fronted office in Mumbai's western suburbs, where its neighbours include the National Stock Exchange and ICICI Bank, India's second largest commercial bank.
As part of its restructuring after three bailouts by the government in four years totalling Rs 7,000-8,000 crore (Rs 70-80 billion), the trust was split in two less than a year ago.
UTI-II manages Rs 13,500 crore (Rs 135 billion) or 15 per cent of the industry's total in schemes regulated by Securities and Exchange Board of India.
It functions like other asset management companies regulated by Securities and Exchange Board of India and is promoted by state-run Punjab National Bank, Bank of Baroda, State Bank of India and Life Insurance Corporation of India.
UTI-I, which manages assured-return schemes, has Rs 30,000 crore (Rs 300 billion) in assets. These schemes are not regulated by Sebi and do not form part of the mutual fund industry association's data. UTI-I is administered by the government.
"They have become more aggressive, focused and result oriented after the shake up," said Priyakant Dalal, a director of Dalal & Broacha Stock Broking Pvt Ltd. Dalal has been actively dealing with UTI for the past 18 years.
Set up four decades ago at the height of India's tryst with socialism, UTI was originally also involved in financing projects and in big-ticket consortium loans along with other financial institutions and banks.
"UTI is on the path of recovery but it will take a while before the trust it earlier enjoyed is restored," said Dalal.
Increased competition from private funds will limit UTI's ability to move markets as in its heyday, he added.
Since they were first allowed in 1993, 23 mutual funds have come up in the private sector, including 16 with foreign participation. These 23 funds managed Rs 64,165 crore (Rs 641.65 billion) at the end of April, or 72 per cent of the industry's assets.
With additional reporting by Denny Thomas
