uti takes on hsbc with india fixed income fund

Praveen Jagwani, the Singapore-based chief executive of UTI International, which markets UTI AM’s funds internationally, says the new fund is expected to benefit from a widespread global interest in emerging market debt, and from the fact that “India today offers the highest yield in the investment-grade world”.

He says the UTI Indian Fixed Income Fund, which is set to go live in November with an initial annual return target of 8%, is expected to appeal to retail as well as institutional investors who are looking for something to enhance the yield of a diversified portfolio.

UTI v HSBC

Once launched, the new fund will, unavoidably, pit Mumbai-based UTI against HSBC, the London-based banking and asset management giant, which launched its own Ucits India bond fund – domiciled in Luxembourg – in August.

Both funds are seeking to benefit from the fact that until now, Indian government and corporate debt has barely featured in the global rush to invest in emerging debt, even though India – a BRIC-member emerging market country – is the world’s fourth largest economy by GDP and, according to Jagwani, has a “robust” credit history at the investment-grade level.

The main reason investors have stayed away is because Indian government  regulations have  made it difficult for foreign investors to access the Indian debt markets, Jagwani explains.  

In addition to requiring a licence to invest in Indian securities, he says, foreign investors seeking to invest in Indian domestic debt also must participate in a monthly auction to “bid for the privilege”. Then, having won a quota, they have just a  90-day window to use it.

On top of that, the Indian regulator imposes a ceiling on the amount of Indian debt that foreigners can hold. Recently it was increased to $65bn [US], which translates to approximately 10% of the country’s total issuance of around $650bn.

A bet on the rupee

Because the new UTI fund is denominated in dollars but deals in rupee-denominated debt it is subject to fluctuations caused by shifts in the US dollar/rupee exchange rate, making it something of a bet on the Indian currency’s expected strength relative to that of the US, Jagwani says.

“If an investor’s view on the Indian rupee over the medium term, relative to the dollar, is neutral to mildly bullish, he is more likely to want to invest in the fund.”

Although disappointed that HSBC got the jump on UTI with its Indian fixed income fund – and, being one of the world’s largest banks, is seen as has greater resources to market its version than UTI does – Jagwani is confident that his company’s product has some advantages of its own. One is certain tax advantages conferred by being domiciled in Dublin, but another is its knowledge of India.

India’s fifth largest asset manager by assets under management, UTI is 74% owned by state-owned financial institutions and 26% by the American money manager T Rowe Price.

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