UTI board battles finmin over new chief

The search for a successor for UK Sinha at UTI AMC has got messy with the finance ministry backing Jitesh Khosla (IAS, 1979 batch) as the CEO of India’s fourth largest mutual fund while a three-member board-appointed HR sub-committee has submitted a shortlist that has two different names.

If the finance ministry insists on its choice, the stage is set for a boardroom battle since the new chairperson has to be unanimously cleared by all shareholders of UTI AMC. These include State Bank of India, Punjab National Bank, LIC, Bank of Baroda and US firm T Rowe Price that was inducted with a 26% stake in the company in January 2010. The others hold 18.5% each.

Some board members have already conveyed their reservations to the finance ministry. Meanwhile, UTI AMC employees met the HR chief this week to express their concern about the fact that the organisation was headless since Sinha left in February to become the chief of the Securities and Exchange Board of India. The HR chief is believed to have told them that while a shortlist of two candidates has been drawn up, the board would prefer a person who has the finance ministry’s approval. While UTI AMC is a private sector company by its constitution, it still retains an informal relationship with the government and its CEO has, therefore, been decided by the ministry till now.

It was to break this connection that investors suggested a new approach to select the chief of the organisation in line with global best practices. The board constituted a three-member search committee which, in turn, left the search to manpower consultants Egon Zehnder International — Egon was the search firm used to find the head for Axis Bank which is owned by UTI.

Egon, in turn, interviewed close to 30 candidates and gave a shortlist to the search committee. At this point, the finance ministry is believed to have pushed for Khosla, who was interviewed by the search committee.

While Khosla was rejected after interviews by the search committee on the grounds that other candidates had solid experience in the financial services business, the ministry has repeatedly pushed his candidature. Khosla is the brother of Omita Paul, adviser to finance minister Pranab Mukherjee. Incidentally, Paul has worked with Mukherjee not only in the finance ministry but also in his earlier stints at the defence and external affairs ministries.

Khosla is now an officer on special duty in the Indian Institute of Corporate Affairs, an autonomous body under the ministry of corporate affairs. An officer of Assam cadre, he was a joint secretary in the ministry till April 2010 and handled the Satyam scam. For the January to March 2011 quarter, UTI AMC had assets under management of Rs 67,189 crore. While it is India’s oldest mutual fund, the fund house has slipped to fourth position now. Repeated efforts by FE to obtain a response from the finance ministry met with no success.

Source: http://www.indianexpress.com/news/uti-board-battles-finmin-over-new-chief/773849/0

Retail investors return to mutual funds thru SIP route

The ban on entry load for mutual funds, which took effect in August 2009, has not been as disastrous for mutual fund sales or for agents selling mutual funds, as was feared.

Not only have retail investors returned in good numbers to mutual funds through the systematic investing route in the year after the ban, the individual distributors who were selling funds did not suffer a big setback in their share of investors' accounts. These are the findings from the data for the period from August 2007 to July 2010, from a mutual fund registrar.

When stock markets were at a high in January and February 2008, mutual funds added new accounts of about 14 lakh a month.

Of this, retail investors, on an average, opened 6.8 lakh accounts. But once the markets tumbled, new account openings fell drastically by over 71 per cent to 2 lakh accounts.

Retail accounts accounted for much of this decline, as accounts opened by high net worth investors (HNIs) dropped by just 24 per cent.

However, data show that new account additions have rebounded in the year since the ban. Between August 2009 and July 2010, they were up by 44 per cent to reach about 3 lakh folios.

Data also throw up another healthy trend, that of retail investors opting to make commitments for longer periods.

From previously committing funds for 24-36 months, the average tenure of SIPs has increased to 61 months in recent times. This is a sign of the longevity of new accounts entering the system.

Independent data from the industry also show that in recent months, more investors are choosing to take the systematic investment plan (investing through monthly instalments rather than one lump-sum) route to enter mutual funds.

SIPs accounted for only 16 per cent of the new folios created about a year ago, but now make up 43 per cent of the new accounts created. The other surprising trend emerging from the data is that individual agents selling funds (called independent financial advisors or IFAs) have not really abandoned mutual funds after the entry load ban, as feared.

Folio additions

IFAs have brought in a total of 9.3 lakh folios during August 2009-July 2010, after the ban. This gives them a 29 per cent share of the new accounts created in this period. That's not lower than the 32 per cent share they held (16.4 lakh folios out of 51.2 lakh) in August 2007- July 2008, before the ban.

National distributors, usually financial service firms, have seen a sharp dent in their market shares after the entry load ban. Though they continue to be the largest contributors to new accounts, their market share slipped from 42 per cent in August 2007 – July 2008 to 34 per cent in August 2009 to July 2010. Public sector banks have made the most of this situation, bagging an 11 per cent share of new business, up from 4 per cent before the ban.

Investors also continued to rely mainly on distributors to buy mutual funds, with the proportion of direct sales (funds to investors) declining from 5.7 to 5.3 per cent in this period.

Source: http://www.thehindubusinessline.com/industry-and-economy/article1682826.ece?homepage=true