The Hindu Business Line : `We will continue with the dividend policy' — Mr Sanjay Sinha, Fund Manager, UTI Mutual Fund

Mastershare's objective is to identify stocks that have a fair chance of appreciating within a year so that we can book profits and distribute dividends every year.

Mastershare, the two-decade old equity fund from UTI Mutual, seldom tops the performance charts, but is a consistent performer nevertheless. It has paid out a dividend in every one of the last 19 years. The dividends have continued even through the worst years for the stock market. Is such a policy the right one for an equity fund that is exposed to the ups and downs of the stock market? Is its investment strategy specially oriented to paying out dividends? The fund manager, Mr Sanjay Sinha, answered a few queries from Business Line:

Equity funds are usually not good vehicles to generate regular income. Is this fund's investment strategy especially tailored to generate dividend payouts? Do you, for example, book profits on target returns on stocks?

Mastershare's objective is to identify stocks which have a fair chance of appreciating within a year so that we are able to book profits and can distribute a dividend annually.

The quantum of dividend has varied across the years and reflects the movement of the market in the preceding year. An in-house research team, which tracks 15 sectors and 184 companies, aids the stock selection. The fundamentals of these companies are diligently examined and clear views are formed regarding fair levels of entry and exit.

Discipline is essential to measure up to investor expectations of an annual dividend. We, therefore, follow a conservative investment strategy. The portfolio is kept fairly diversified and, as far as possible, we peg the sector weights of the portfolio within a band of 5-7 per cent of their weights in the Sensex.

Are the fund managers confident of continuing with Mastershare's present dividend policy?

We intend to pursue the present dividend policy. We have a reasonable amount of reserves in the fund and this should enable the fund to tide over any cyclical moves of the market.

Mastershare's dividend payouts typically come in September/October every year. But stock market trends over the past six years suggest that stock prices usually appreciate sharply between November and March each year. Do dividend payouts prompt you to book profits on part of your holdings just before the "November effect" kicks in?

On the contrary, we normally attract a fair amount of inflows along with the announcement of dividends, which trickles in just before the uptrend that we have seen in the period between November to March over the past ten years. The new investors can ride this rally. We also allow re-investment of dividend under UTI Mastershare and thus the investor has the ability to plough back a tax-free inflow back into equity market

What is your outlook for the major indices after the sharp rise in valuations, of the past two years? Will equity funds be able to deliver a 15 per cent return from this level of the stock market?

The broad indices reflect a strong momentum in the corporate sector's earnings. This stems from resurgent economic growth. The GDP growth rate of over 8 per cent in the first quarter was led by an industrial production growth of over 10 per cent.

This, in turn, was led by growth in the capital goods and consumer segments. Going forward, the twin effects of strong earnings growth and increasing flow of liquidity to equity market, will reflect in a secular upward move in the indices.

There may be short-term hiccups based on sentiments, news flow and liquidity flows but this will not alter the broad direction of the market.

UTI Mastershare has delivered an annualised return of more than 16 per cent since its inception over the last 19 years. In the last one year it has generated almost 50 per cent return.

This goes to prove that equity investment is for the long term and it is advisable that investors commit investments in the equity market systematically rather than judge market levels and try to time the market.

Mastershare's performance has historically closely tracked that of the Sensex. Given this, what is the reason for the fund underperforming the Sensex over the past year?

If you compare the performance of Mastershare over a one-year period starting from September 2004, you will find that it has outperformed the Sensex in two out of the three quarters. The last leg of the Sensex rally was led by some of the index heavyweights and, being fairly diversified, UTI Mastershare appears to have underperformed.

This performance difference is an aberration and is narrowing. If you look at the last one-month's performance as on October 5, 2005, UTI Mastershare is in the first quartile among 130 diversified equity funds in terms of performance.

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