UTI Mutual Fund aims to collect Rs 500 cr via new equity fund

UTI Mutual Fund expects to garner Rs 450-500 crore from its new offer-UTI Focused Equity Fund-Series 1, according to Anoop Bhaskar, head of equity, UTI Mutual Fund.  This is first equity fund launched by the fund house since November 2008.
 
Speaking at the launch of UTI Focused Equity Fund-Series 1, Bhaskar said the fund will invest in a concentrated portfolio of 25-30 stocks out of the top 500 companies by market-cap. This is a close-ended equity fund with 1,100-day maturity. A close-ended fund has a lock-in period during which investor cannot redeem the units of the funds. This allows fund managers a flexibility to invest in stocks with a long-term view without bothering about redemption.

Distributors like these schemes because the fund house can give a higher upfront commission to the distributors. According to Surak Kaeley, group president, sales and marketing , UTI Mutual Fund, they would offer anywhere between  4.5-5% upfront to distributors.

When asked if the fund house was little late in launching the NFO of an equity fund given that the stock markets have already touched new highs post-elections, Bhaskar said that there is more certainty regarding most of the macro-economic factors (inflation, interest rates, GDP growth, etc) now and the valuations (based on trailing 12-month price-earnings ratio of 17) are still not too expensive.

He said the key drivers for the equity markets are inflation, interest rates, credit growth, corporate profits and valuations. According to him, all these factors looked favourable at the moment-inflation is on the way down, interest rates may start falling by last quarter of this financial year, and corporate earnings are set to go up from here.

Bhaskar expects corporate earnings growth to be 15-17% by 2017-18. Though he says valuations are not as cheap as they were 6 months ago, he feels with trailing P/E at 17 times, there is scope for upside in the equity markets.

Many mutual funds launched such close-ended funds in the second half of 2013 expecting a majority government at the Centre and a subsequent revival of the economic cycle.

"Last year when fund houses were launching close-ended funds, there were too many uncertainties regarding the new government. Today we know there is a stable government at the Centre, which can revive the economy and investment cycle in the next four years. Besides, corporate earnings growth would take another 7-8 months to cross double-digit mark from 7% in the past four years," he says.

Bhaskar said he does not expect any policy rate cut in the Reserve Bank of India's (RBI) bi-monthly monetary policy on Tuesday.  "We expect any rate cut only in the fourth quarter of the current financial year," Bhaskar said.