The Hindu Business Line : UTI-SSgA to launch index fund benchmarking DJ Global Titans 50

SIX months after it tied up with State Street Global Advisors, UTI Mutual Fund has come up with its first product under the UTI-SSgA umbrella - an index fund based on an international benchmark, the Dow Jones Global Titans 50.

The proposed UTI-SSgA Global Titans 50 Index Fund (with the usual growth and dividend options) will try to deliver returns as close as possible to that of the underlying index. The latter is computed and maintained by Dow Jones and Co.

UTI MF is expected to position its latest offer chiefly for domestic investors who wish to savour internationally-known equities through a passively-managed scheme. A minimum Rs 10,000 will be required for investing in the scheme, which will be required to follow Indian regulations.

The Dow Jones Global Titans 50 index, according to the offer document filed with SEBI for clearance, provides exposure to companies headquartered in nations around the world. It aims at curtailing risk through country diversification and by including only the largest and most-established blue chip corporates. The index is weighted by free-float market capitalisation. Each component's weightage is capped at 10 per cent of the index's total free-float market cap.

UTI and SSgA had in May - the agreement was signed in Kolkata - announced their partnership, following which State Street Global Advisors Asia Ltd was mandated as investment advisor. The latter (for a fee) is expected to monitor and review the investments of the proposed fund and recommend appropriate changes.

SSgA, which had over $1.2 trillion under management, is currently ranked as the world's largest institutional asset manager. Its client base includes pension funds, insurance companies, Government organisations and corporates. More than half of the assets are managed through indexed or enhanced equity strategies.

Dynamic risks

THE proposed fund will follow a passive strategy, with its focus on replicating the chosen index and minimising tracking errors. Composition of the index is subject to changes, which Dow Jones and Co may consider necessary from time to time.

Foreign exchange risks could also arise. The fund, to be denominated in Indian rupees, will expose investors to such risk between the rupee and other currencies (that is, where the securities comprised in the index are denominated in currencies other than the rupee).

As the offer document has pointed out, the fund will not be sponsored or promoted by Dow Jones. The latter will have no obligation to take the needs of UTI MF into consideration while calculating the index.

Investors should bear in mind that tracking errors may arise because of a number of reasons. Local restrictions or cost considerations may also prevent the full replication of the index, it is stated. Incidentally, the fund may use hedging tools (including derivatives) as may be permissible under SEBI (MFs) Regulations. Derivatives may also be used to manage forex risks.