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Sunday, June 03, 2001













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UTI Mastergain 1992: Sell

Recommendation: Sell

Aarati Krishnan

INVESTORS in UTI's Mastergain 1992 could consider liquidating their units.

The scheme has underperformed the market in three of the past five years and has earned a compounded annual return of around 2.5 per cent per annum in the nine years since launch. But, since the equity market is at fairly low levels, this does not seem a good time to divest equities.

Therefore, an investor may consider investing the proceeds either in a passive index fund or in a diversified equity fund with a good track record, based on his risk preferences. This would ensure that he participates in a equity market rally, should it materialise. The UTI's Nifty Index Fund and Franklin India Index Fund could be considered as options.

Suitability: This recommendation is suitable for all investors in the fund. Investors who have stayed with the fund since inception have suffered an opportunity loss on account of its lacklustre performance. For recent entrants, an index fund may offer a much better opportunity to participate in a broad market rally.

Performance: After factoring in the two dividends paid out since launch, Mastergain 1992 has earned a compounded annual return of around 2.5 per cent in the nine years to date. On a point-to-point basis, the scheme has performed better than the Sensex, which has posted a negative return over the same period.

However, these nine years have seen around half a dozen boom phases in the stock market, with several opportunities for profit-booking. Nine years is definitely a long enough period for a fund to chalk up a reasonable investment performance, if it manages its portfolio actively.

The fund's poor track record is largely because it trailed the index from 1997 to 1999. Faring better in 2000, the fund again trailed the index in 2001.

The performance can be traced, at least in part, to its large size and the very large number of stocks in its portfolio. As of end April 2001, the fund managed net assets of Rs 943 crore, spread over nearly 170 stocks. Trading on an equity portfolio of this size, especially on some of the mid-cap holdings, without a significant impact cost, is quite difficult in the Indian context. Empirical evidence suggests that in the Indian context, small and mid-sized funds with a focussed portfolio have performed much better than large funds such as Mastergain 1992.

As of end April 2001, Mastergain 1992 had index heavyweights such as ITC, Hindustan Lever, Reliance and Reliance Petroleum as its top holdings. However, stocks such as Modi Rubber, SRF, Neyveli Lignite and Birla Corp also figured among the top 50 holdings of the fund. The fund had a large number of marginal holdings in its portfolio, amounting to less than 1 per cent of the net assets. These could weigh on the fund's performance, even if the top holdings turn in respectable returns.

Fund facts: Mastergain 1992 was launched in April 1992 as a close-end fund. It was made open-ended in 1997. The fund offers liquidity at a NAV-related repurchase price. It has declared two dividends so far: 12 per cent in 1996-97 and 15 per cent in 1999-2000.


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