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S. Vaidya Nathan

INVESTORS in the UTI MNC Fund can contemplate cutting exposures and switching to diversified equity funds, which could offer superior returns. Given its objective of investing in MNC stocks, it is no surprise that fund has under-performed most other equity funds.

Over the past year, the NAV has gained about 50 per cent, with exposures in ABB, Siemens, Aventis Pharma and Bharti Tele-Ventures contributing significantly. ABB and Siemens have, for instance, notched up impressive gains even over the past month. The NAV of the fund is Rs 16.1 per unit.

Over a longer time-frame too, the returns have not been impressive. Annual returns over five-year and three-year periods are at about 12 per cent and 8 per cent respectively. The fund has comfortably out-performed its benchmark, the S&P CNX MNC Index.

But investors would be better off opting for diversified funds that do not have a restricted mandate as UTI MNC Fund does. Options such as Prima, Bluechip, Alliance Basic Industries, Templeton India Growth, HDFC Equity, HDFC Tax Plan, HSBC Equity and US-95 and Zurich Prudence (which are balanced funds) can be considered.

Exposure to diversified funds would have delivered returns ranging between 80 per cent and 130 per cent over the past year due to the bullish phase in equities. MNC stocks have relatively under-performed in this phase, and this is reflected in the performance of the UTI MNC Fund as well.

Going forward, this trend may not change. Even if MNC stocks in one sector — for instance, stocks of pharmaceutical companies — do well, insipid performance from other sectors could offset gains. Rare is the period when MNC stocks, cutting across sectors, have run up sharply, and out-performed the broad market.

Suitability: The fund is appropriate for investors who are comfortable with equity options that could deliver steady returns.

But the risks associated with MNC stocks are no different from the rest. On risk-adjusted returns too, such a fund is likely to lag most other equity funds.

Only investors who have a large proportion of assets in equities of Indian companies can consider such a fund for diversification. Investors who opt to stay in the fund should prefer the dividend option due to its superior tax efficiency in FY04 (dividends are exempt from tax).

The fund is focussed on the consumer products, pharmaceutical, engineering, telecom and IT sectors. Exposures to the consumer products sector, at about 30 per cent, can act as a drag on performance.

The fund has also picked stocks of companies such as Bharti Tele-Ventures, Asian Paints and Maruti Udyog, probably because of their linkage with global players and/or presence in other markets.

Fund facts: The UTI MNC Fund was launched in April 1998 as UTI UGS 10000. The minimum investment amount is Rs 5,000. The entry load is 2 per cent. There is no exit load. The fund has an asset base of Rs 153 crore, and is managed by Mr Manish Kumar. A 20 per cent dividend was paid in March 2000.

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