UTI Equity fund: INVEST

Investors can buy the units of UTI Equity fund, given its track record of delivering steady returns over the long term. The fund may not provide spectacular returns over the years, but tends to be less volatile by not taking too many risky bets. UTI Equity was previously known as UTI Mastergain-92.

Over one-, three- and five-year timeframes, the fund has outperformed its benchmark — BSE 100. The level of outperformance is to the extent of 4-7 percentage points.

In the last five years, the fund has delivered compounded annual returns of 7 per cent, which places it between the top- and mid-quartile performers in its category. These returns are better than peers’ such as DSPBR Equity and Franklin India Prima Plus.

Its performance has improved significantly over the past three-four years and the fund features in the top quartile for returns over this period.

UTI Equity is a predominantly large-cap focussed fund that participates reasonably during market rallies while containing downsides quite well during bearish phases. The strategy of being large-cap oriented may work well for the fund in the current volatile market environment where companies with steady revenue visibility and earnings growth are preferred.

UTI Equity may be suitable for investors with a fairly moderate risk appetite looking to build a corpus over the long-term of five-seven years. Investors can take the systematic investment plan (SIP) route to taking exposure to the fund.

Portfolio and strategy

UTI Equity generally takes cash position to the tune of 5-6 per cent across market cycles. But when there is a bearish trend, such as in 2011, the fund increases holding in cash to over 10 per cent of the portfolio. In early 2009, the fund held nearly a quarter of its assets in cash or debt instruments.

However, it is generally reasonably agile to redeploy this cash when markets turn around for the better. The fund invests 80-85 per cent of its portfolio in large-cap stocks (greater than Rs 8,000 crore market capitalisation), with around 5-10 per cent parked in mid-caps.

Apart from the above two strategies, the fund has been able to contain downside well due to another key factor — diversification. The number of stocks in the portfolio has ranged 70-80 at any point in time. This gives the fund high levels of diversification and the ability to limit risks significantly.

In terms of sectors, banking and consumer non-durables have consistently figured among the top. Software and pharma too have been among the top segments held. All these segments had a good run from mid 2009, which the fund benefited from. Even though some of these sectors may have become expensive, the fact that exposure to individual stocks is very low ensures limited damage during any correction. Though exposure to defensives is rather high, UTI Equity still manages to deliver across cycles. The fund was able to limit downsides in 2011 and also participate in the sporadic market rally for much of this year.

Buy into this fund if you are looking for above-average rather than spectacular returns over the long term. The NAV per unit for the growth option is Rs 59.86.

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