Mutual funds still hold promise - UTI chief

By C. R. L. Narasimhan

MUMBAI, JULY 1. Mutual funds which were everyone's favourite investment avenue for most of last year have been in the news more recently for the wrong reasons. The extreme stock market volatility has naturally been reflected in fluctuating NAVs of various funds. Some of the top performing mutual fund schemes, whether growth or even balanced, have, as seen from their NAV movements, started resembling one of the volatile scrips in their portfolio. Naturally investors who believed that mutual funds were a good via media between direct stock market investment and fixed deposits (with banks or the few remaining NBFCs) feel let down.

Another problem arises from the stupendous success achieved by the mutual funds in mobilising funds. There are complaints that their after sales service has come down badly. Clearly even those who claim to have adopted the latest technology have been unable to deliver investor friendly solutions.

Recently The Hindu asked Mr. P. S. Subramanyam, Chairman of Unit Trust of India, to comment on these two issues. Based on UTI's record, he says that the complaints (of indifferent after sales service) as a percentage of the volumes is much less than in the case of the private sector funds. ``And we are putting more emphasis on investor services''. TCS is developing a special software for UTI. When it is installed - in six to eight months time - UTI will be in a position to offer online customer service. It is also proposed to connect agents who have a certain level of business.

The UTI chief agrees that investor perception of some mutual fund schemes has turned sour because of their volatile NAVs. Comparatively UTI suffered less because its risk diversification was more pronounced as compared to others. Some funds took large positions in the new economy stocks. The UTI also took exposure in these stocks but when compared with its scale of operations they were within prudent limits.

So when the new economy stocks lost value UTI was not affected so badly. It has seen its schemes' NAVs go down but not to the same extent as some of the others' schemes, says Mr. Subramanyam. Everyone is now learning something of what UTI has always been propagating: the need for a dynamic balance supported by proper risk diversification.

Debt-based mutual funds are beneficial only to income-tax payers. Retired people, pensioners and others outside the tax net are doubly squeezed: the absence of a safe investment avenue and the general fall in interest levels. For example, UTI's hugely popular monthly income schemes are paying at least three per cent less than they did a short-time ago.

Adding to the problem is the budgetary decision to tax the debt based mutual funds. According to the UTI chairman, the CBDT, in consultation with SEBI, might think of a way of minimising the regressive implications.

The idea, admittedly at a preliminary stage, is to find ways of spreading the burden of tax over several - and not just the debt based - schemes. This suggestion is obviously for the medium term and will require amendment of the mutual fund regulations.

The UTI's perception of its own role has changed over the years. Earlier it was thought of as a funds mobiliser from the public which it then used to support its corporate financing activities. Today its primary focus is on investors. The fact that the funds collected are deployed, as before in corporate debt or equity, is incidental to its primary role, says the UTI chairman. A massive investor education programme in conjunction with the principal stock exchanges and other institutions is just one step in that direction.

Asked about the US 64 scheme, the flagbearer for UTI, Mr. Subramanyam said the mobilisation had been extremely good in recent months compared to a year ago.

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