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UTI ventures into venture capital

Nov 23, 1999

According to a report by a leading business newspaper, the Unit Trust of India (UTI) will launch a US$ 65 m offshore venture capital fund on the eve of the new millennium. UTI, with assets in excess of Rs 630 bn as on 30th September 1999, is India's largest mutual fund (MF). It accounts for 73% of India's MF segment.

The newspaper report reveals that UTI has already got soft commitments for its domestic offering of about US$ 28 m (Rs 1.2 bn) from investment institutions and banks. The marketing for the offshore offering of about US$ 37 m (Rs 1.7 bn) has also begun. Life Insurance Corp. (LIC) and General Insurance Corp. (GIC) have given their commitment for investment in this fund.

UTI's venture capital fund is expected help overseas Indian entrepreneurs create wealth in India. The fund will identify early investment opportunities in India and overseas and help technocrats who have the ability to exploit markets across the borders. The fund will also assist Indian entrepreneurs set up projects abroad, particularly in the IT sector.

UTI hopes to launch the venture capital scheme and finalise a couple of deals before the end of 1999. UTI has not said how it proposes to makes amends for its lack of experience in the venture funding business. This fact is likely to reflect in the performance of the fund. Moreover, the venture capital business has some upsides and downsides. The upside is that if the venture prospers, the returns are very high. The downside is that if the venture goes bust, it will put downward pressure on returns. Another peculiarity of the venture funding business is that the venture starts giving returns over a period of time. Investors will need to be very patient.

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