The Hindu Business Line : UTI's stormy passage

IT HAS been a stormy passage for the Unit Trust of India over the past decade — from simmering problems, to a full-blown crisis and, then, a series of moves from the government to deflect the crisis.

The present UTI Mutual Fund would appear a shadow of its former self — the mutual fund's asset base today is just a third of what it was in 1994.

But the story of UTI should still be counted as one with a happy ending. Given the magnitude of the problems it faced, the crisis has been deflected with relatively little pain for its investors and for the stock market at large.

With the NAV-based schemes ring-fenced from the problem-ridden ones, the fund has been given the opportunity to start over with a clean slate. What the UTI experience shows is:

Assured returns cannot be sustained for long periods of time by institutions which invest mainly in market instruments.

Knowing where your moneys are invested and how they generate returns is important, no matter where you invest. Investors who noticed the rising exposure of the US 64 to the stock market, may have questioned the sustainability of its dividend payouts, long before the controversy over dividends snowballed in 2001-02.

Retail investors offer greater stability to a fund than corporate investors. The flashpoint in the US-64 crisis was hastened by the large-scale redemptions by corporate investors, when the first reports of the crises appeared in the media.

The US 64's choppy track record over the past ten years, has not diminished the relevance of the business model on which it was based. From its inception in 1964 to the mid-1990s, the fund managed to consistently generate higher returns than available from avenues such as bank deposits.

Regular dividend payouts made sure that the fund periodically booked profits on its investments, and evened out sharp blips in performance. This is proof that a balanced fund with a conservative investment in stocks, if managed well, could be an investment suitable for retail investors.

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