• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Suresh Krishnamurthy

FRESH investments in the UTI Retirement Benefit Plan (RBP) can be avoided. The performance of the fund in the past few years has not been impressive. Given the lock-in period of five years and the large exit load applicable for redemptions before investors attain the age of 58, this is a cause for concern.

Review: The UTI RBP can be categorised as a balanced fund. It had large exposures to equities in 2000 and earlier. However, the sharp decline in prices of equities has led to a reduction in the fund's equity exposure. Its asset allocation strategy between December 2001 and March 2003 revealed the following features:

Relatively large cash position of 10-15 per cent;

Exposure to equities has been 23-29 per cent;

No exposure to government securities till end-December 2002;

Relatively large exposure to lower-rated corporate securities with exposure to less than triple-A rated securities of about 44 per cent at end-December 2001 and 30 per cent at end-December 2002

The asset allocation has had an effect on returns over the last 24 months. The UTI RBP, with a 23-29 per cent exposure to equity, generated returns of about 10 per cent. In the same period, Templeton India Pension Plan (equity exposure 40 per cent) clocked 20 per cent growth.

Monthly income plans such as that of Alliance, with exposure to equity of 10-15 per cent, generated returns of about 23 per cent. In this backdrop, the performance of UTI RBP is not encouraging. However, the returns are based on net asset value changes. If the tax benefit were considered, the returns would have been higher.

The lacklustre performance can be attributed to the following factors:

In equities, relatively low exposure to mid-cap, banks and PSU stocks in the period December 2001 to March 2002

The large provisions made for doubtful debts in the half-year ended June 2002 and December 2001 is also reflected in the performance of RBP during that period.

Between April 2001 and June 2002, RBP recorded returns of 4.6 per cent. In contrast, a monthly income plan such as Alliance MIP, recorded returns of 15.6 per cent. RBP has since done somewhat better.

In a way, the large provisions and the underperformance are also indirectly a fallout of the zero exposure to government securities.

Higher exposure to government securities would have reduced the impact of corporate delinquency on the portfolio's returns. Moreover, the performance of g-secs during the period was spectacular.

The contribution of the equity portfolio to RBP's returns is difficult to measure. However, the absence of large exposure to mid-cap stocks, banks and PSU stocks may have affected fund performance. The rise in value of these stocks during the last 12 months has been impressive.

In contrast, the performance of large-cap stocks, such as HLL, ITC, Larsen & Toubro, Grasim Industries, Hindalco, Zee Telefilms and Reliance Industries, which have been the mainstays of the portfolio, has been relatively sedate.

Overall, the performance and asset allocation strategy of RBP has not been suitable to its objective of building wealth for retirement. There is some improvement in performance in the last six months, though.

In addition, the fund also sports one of the lowest expense ratios among balanced funds. For the half-year ended December 2002, total recurring expenses were 0.38 per cent of the average net assets. Provisions for doubtful debts also declined to near zero levels during this half-year period. These factors are encouraging.

On the other hand, the fund manager has indicated plans of increasing the equity exposure. Since the past performance, when equities were high, has been unexciting, the enhanced exposure requires caution on the part of investors. Thus, fresh exposures can be avoided now.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Vickers Systems: Accept

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line