• MAY 15, 2000

"Regardless of what the media has to say, UTI has always pursued an innovation-led strategy."

Mr. B. G. Daga holds a Masters Degree of Commerce and is a Company Secretary by profession. He put in a long stint in the Reserve Bank of India (RBI) where he handled foreign investment and FERA dilution. He then migrated to UTI where he honed his skills in the Department of Investments and Department of International Finance managing the offshore funds and its other international businesses.

He also managed the domestic growth schemes and offshore funds of UTI and supervised the secondary market operations and equity research. He is currently the Executive Director of Business Development and Marketing in UTI.

In an interview to personalfn.com. Mr Daga shed some light on UTI's future plans and the prospects of the domestic mutual fund industry.

PFN: What is your view on the economy?

Mr. Daga: The economy is doing well as is apparent from several indicators - the level of industrial production, exports, forex currency reserves, current account deficit. Inflation has been rising, but is not really a cause for concern. So on the whole the economy is on the upswing. Even the Reserve Bank of India (RBI) has forecasted GDP growth of 7% in the current fiscal.

PFN: What role do you seeing mutual funds playing in this scenario?

Mr. Daga: With the removal of tax on dividends, mutual funds have become an attractive avenue of investments for investors. Earlier we had the Unit Trust of India mobilising resources from across the country. Of course UTI's schemes were not treated as other mutual fund schemes in the sense that they were not covered by the Securities & Exchange Board of India (SEBI) guidelines in toto. But soon even UTI's schemes will come under SEBI's purview.

In addition to the tax sops, the mutual fund industry got a tremendous boost from the surge in the markets. Then we have witnessed innovations, new schemes and trends, which collectively had a positive impact on inflows. A significant trend in the last few years has been the large number of open-ended schemes which has added to the liquidity to the system. Earlier most schemes were close-ended, but now the trend has reversed. So on the whole, the industry benefited by these measures last year and I don't see why this growth can't continue in the current year. The only thing that spoiled this was the 22% (20% + 2% surcharge) rise in tax on dividend from 11% earlier.

Mutual funds offer some unique benefits that enable an investor to maximise returns. Investors get the services of an experienced portfolio manager with an expertise in stock-picking and timing (in terms of entering and exiting). Diversification is another critical feature offered by mutual funds. In a volatile market these benefits are amplified further.

PFN: In the long term what could be the savings rate in the country? What is the proportion of financial assets as a percentage of total savings?

Mr. Daga: If the country has to grow at 7% of GDP, the interest rate has to come down. There could be blips on the way, but in the long term interest rates will have to kept on a leash.

In 1994 we saw that the proportion of savings in financial assets (mutual funds, equities) was high. But after that there was a decline.

PFN: In future do you see the proportion of equities as a percentage of financial assets rising?

Mr. Daga: Yes definitely.

PFN: Currently what is UTI's market share? At what level do you see your market share stabilising with the entry of competition?

Mr. Daga: I think our market share covers about 2/3 of the mutual fund industry and we should be able to maintain that level.

PFN: What kind of distribution channels are you employing? Are your distribution agents able to understand the mutual fund product well? Are they getting more sophisticated now?

Mr. Daga: Some of them are getting more sophisticated and we are also imparting focussed training to them. But what is interesting is that the investor has got more demanding. And the media has played its own role in covering mutual funds in a big way. Nowadays one sees newspapers covering mutual funds regularly, at times devoting an entire page to the industry.

So the distributors will have to keep pace with these changes and the increasing demands of the investors. Of late the banking sector is being employed widely for distributing mutual fund products. And of course there is the Internet. Initially Internet will not be used for direct applications. But it will be used widely for distribution of literature and forms.

PFN: How are the penetration levels of mutual fund products in various districts and towns in general and UTI in particular?

Mr. Daga: UTI has always had a presence in every district in the country. It could be Shillong, Meghalaya, Saurashtra. In every district we either have a state representative or a franchise office. By and large penetration is restricted to the metros and cities.

PFN: What are your plans and initiatives to enhance your service levels?

Mr. Daga: Before I comment on that I would first like to emphasise that UTI is a one-stop shop offering all types of mutual fund products. It is the only one of its kind in the country.

As far as the initiatives are concerned we have taken several steps to streamline our procedures. We have introduced a common application form covering several schemes, thereby standardising the procedure. We have issued instructions to our registrars to send us a statement of accounts for a period not exceeding 10 working days. Earlier non-receipt of dividend warrants and redemption proceeds was a common grouse of investors. But today we have resolved that to a large extent by making bank account disclosure mandatory. We have also delisted some open-ended schemes, which were also being sold by UTI directly. This is because we found out that some investors were exploiting the arbitrage opportunities between our rate and the rate on the stock exchange.

PFN: What shape do you see the industry taking five years from now with the introduction of new products like pension plans?

Mr. Daga: When these developments do take place we have no choice but to cope up. When the insurance sector is privatised it will broaden the market and the mutual fund sector will also benefit. With higher volatility in the markets, people will turn to mutual funds due to the low cost of transactions and easy entry and exit option provided by mutual funds. Moreover, a lot of money will also start flowing from the bank deposits to money market mutual funds.

Moreover the service standards will also improve. Currently there are no third-party service providers offering services like accounting, NAV calculation and administration. As demand for better service increases, these peripheral service industries will also flourish. Others aspects of mutual funds like disclosure norms will also improve. For instance, UTI has started disclosing its portfolio on a quarterly basis.

Then of course there could be other innovative products like real estate, derivatives and commodity-based mutual funds. Indian mutual funds may be permitted to invest in overseas markets and foreign investors may be allowed to invest in Indian mutual funds.

PFN: What role will UTI play in this scenario?

Mr. Daga: UTI will lead from the forefront. Regardless of what the media has to say about us, UTI has always pursued an innovation-led strategy. Any product you name, we have been the first ones to introduce it in the market be it sectoral funds, index funds, NRI funds.

PFN: So many foreign mutual funds are making forays in India. Do you also have plans to venture abroad?

Mr. Daga: Yes. We will definitely venture into other countries when such a move is permitted by the law.

PFN: What is your advice to the mutual fund investor particularly in the backdrop of increasing volatility in the markets? Also what is your view on the sectoral funds that were launched in the recent past, particularly software?

Mr. Daga: Any investor before plunging into any particular field must define his investment objective clearly. He must be sure of what he wants - moderate growth, aggressive growth, steady income. Having defined the investment objective he must understand the risk factors. He must continuously monitor the investments. This is important in a volatile market when changes take place very rapidly.

PFN: Who are the three persons who have had a major influence on your life?

Mr. Daga: The first was the headmaster of my school. Second was one of my bosses who has contributed to my style and personality. I worked under him at the Reserve Bank of India (RBI) for about 12 years. Currently he is the chairman of HDFC Bank - S. S. Thakur.

PFN: Do you read a lot?

Mr. Daga: I like to read books dealing with management and spiritual topics.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407