UTI MF ahead on profit street even as AUM slips

Last year, the 43-year-old Unit Trust of India (UTI) went through a mid-life crisis. The state-owned mutual fund (MF) behemoth was struggling to retain its supremacy in the asset management game, something which it had done for decades. In terms of assets under management, it has ceded the top slot to ADAG-led Reliance MF. But UTI MF continues to hold a trump card. In absolute terms, it is the most profitable MF.

As per UTI officials, the asset management company has reported a profit after tax (PAT) of little less than Rs 150 crore for financial year 2007. Even last year, UTI was the only MF with a net profit of over Rs 100 crore. However, the growth in profits has slowed down to 12% in 2007, as compared with 30% in 2006.

Meanwhile, private sector MFs too have been growing at a brisk pace. HDFC AMC has reported a profit after tax of Rs 67.5 crore in 2007, up 47%, year-on-year while Reliance MF’s PAT was Rs 50.7 crore, up 74%, over the previous year. While HDFC continued to grow at last year’s levels, Reliance MF’s bottomline has more than doubled.

There is a high probability of a shuffle in the top three positions in terms of absolute profits. Reliance MF could edge past ICICI Prudential AMC to take the number three position. Last year, UTI remained the most profitable (Rs 133 crore), followed by HDFC (Rs 46 crore) and ICICI Pru (Rs 31 crore). Reliance’s profits last year was Rs 2 crore lesser than ICICI Pru at Rs 29 crore. But Reliance’s assets have grown at a faster pace (128%) in 2007 than ICICI Prudential (66%) and the former has a higher chunk of equity assets (which yield better fees). The other fast-growing fund houses include PruICICI (66.3%), HDFC (51.8%), SBI (58.2%), and DSPML (57.7%).

Even though assets have grown, overall profit growth could be slower. This is because in the past one year, a major part of the growth has taken place in debt assets, which yield lower fees to MFs. Fixed maturity plans (FMPs) have been the rage in the past six to eight months, thanks to rising interest rate scenario. While this has bolstered the AMCs’ assets, it is not very profitable proposition as these products earn management fees in the range of 0.04-0.07% per annum. Equity funds in contrast earn 0.65 to 0.95% on a net basis. These fees are generally charged to net asset value on a daily basis based on average fund assets.