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UTI Asset Management Company Ltd
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Ladies and gentlemen, good day, and welcome to UTI Asset Management Company Limited Q3 FY '23 Earnings Conference Call. From the management, we have with us, Mr. Imtaiyazur Rahman, Chief Executive Officer and Managing Director; Mr. Surojit Saha, Chief Financial Officer; Mr. Vinay Lakhotia, Head Operations; and Mr. Sandeep Samsi, Head, Investor Relations and Corporate Communications. We also have Investor Relations team from Adfactors.
[Operator Instructions] Please note that this conference is being recorded.
Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Please note the disclaimer mentioning these risks and uncertainties are on the disclaimer slide of the investor presentation that has been shared earlier.
I would now like to hand the conference over to Mr. Imtaiyazur Rahman for opening remarks. Thank you, and over to you, sir.
Thank you very much, and good afternoon to all of you. It is a great pleasure to connect with you for the third quarter and 9 months ended earnings call for the financial year 2022-2023. This also a very momentous occasion for UTI. Yesterday, 1st of February 2023 marks the beginning of the Diamond Jubilee year of the brand UTI that started its operation on 1st of February 1964. We also completed 20 years of UTI Asset Management Company, which begin operation as a SEBI registered mutual fund on 1st February 2003. On this wonderful occasion, it is my privilege to thank all our stakeholders for being great towards our strength and support to UTI in this long journey.
Friends, this week is marked as Union Budget Week 2023/2024. Yesterday, the Honorable Finance Minister Nirmala Sitharaman-ji presented the first budget of the Amrit Kaal of India. The era of Naya Bharat will be driven by technology and sustainable energy to create a knowledge base economy, which would have a strong public finances and well developed financial sector.
The budget listed out 7 guiding principles, rightfully termed as Saptarishi to help the country navigate to new heights in this Amrit Kaal. The Saptarishi are intricately linked to each other. As one is needed to ensure the fulfillment of the other and the achievement of all the priorities will empower the economy to reach the objective of India@100. The first priority, inclusive development or what I would like to refer to as [ Sapta Sath, Sapta Vikas ] cannot be seen without a reference to the second [ rishi ] reaching the last mile. After all, we are a nation that is spread far and wide with people from every social economic and cultural background. The development of all of us is dependent on the fact that investments are being made to enhance the infrastructure throughout the length and breadth of the country, which has been outlined as a third priority. This will also help us create a vibrant financial sector that would enable us to achieve our core goal by supporting the development of our nation.
And while we talk about inclusive development, it has to be a growth that is sustainable and this cannot be seen without emphasizing on the growth of green energy and amplification of sustainable practices. This country belongs to the future that's the youth, their empowerment is a key to unleash the true potential of our country from being one of the finest innovators to demonstrating best government.
It's the government's encouragement to include financial literacy and financial education, we at UTI as a member of financial sector and the mutual fund industry take a responsibility to continue to be the frontrunner on the investor education front. With the announcement of well-balanced budget that emphasizes on the economic growth, while maintaining the fiscal prudence the gears are all set to [ express ] consumption, savings and capital investment.
The budget for 2023-'24 continues with the government driven of completing the macroeconomic level, growth focus with a microeconomic and all-inclusive incentive. While it is usually difficult to achieve all the objectives at one go, this budget has managed to do so. There is a high focus on capital spending. Impressive fiscal management, while ensuring judicious supply is moderate, thus, creating enabling conditions for sustained economic growth.
Let me share me something -- let me share with you about a tax benefit for individuals. The announcement towards the personal income tax would benefit the people, especially the working population as the government has introduced several benefits. More so, with concessional tax gain properly known as new tax review. Also the maximum tax weight would see reduction from 42.74% to 39%. These favorable changes in the tax review will provide individuals with surplus income that can be penalized, to the capital market and to the mutual fund industry. UTI will also be beneficiary of this change.
Along with the several tax reviews, modifications, which could help informal mutual fund, the announcement relating to simplification of KYC norms would also highly benefit the industry. Reducing the cost of compliance and simplify KYC norms based on risk based approach would help us to bring new investors in the mutual fund industry and in UTI. The extending of our industry would also help the country achieve its goal of having a strong financial sector, which will contribute to the objective of a $5 trillion economy. And as the new mutual fund industry grows, UTI with wide presence across the length and breadth will stand to benefit and help our fellow citizens on their wealth creation journey.
UTI is looking forward to defend its geographical presence in our country. With all this is in -- with all that being in place, India continues to be the fastest-growing emerging economy. This will help us in the growth of the mutual fund industry and in UTI.
Coming to the major purpose of this call to discuss our quarterly performance, I have with me my distinguished colleague, Mr. Surojit Saha, Mr. Vinay Lakhotia and Sandeep Samsi. With this, I now hand over to Mr. Sandeep Samsi to share with you about our performance. Over to you, Sandeep, and thank you.
Thank you so much, sir. I will first go into UTI Mutual Fund's performance. For us, the quarterly average AUM as on 31st December 2022 stood at INR 2,40,841 crores, up by 7.2% year-on-year. As on December 2022, our market share stood at 5.98%, consistent from the quarter ended September '22 and up by 15 basis points from 5.80% for the quarter ended March '22.
Our equity quarterly average market share is 4.82% for the October to December '22 quarter. Our equity quarterly average AUM for the December quarter stood at INR 73,631 crores, rising by 5.1% as compared to the quarter ended December '21. The quarterly average AUM for index and ETF recorded a year-on-year growth of 35.2% to INR 81,580 crores for the third quarter. Net sales for UTI Mutual Fund for quarter 3 of FY '23 stood at INR 3,962 crores, while the overall industry saw inflows of INR 31,802 crores. The EPS and the index fund net inflow stood at INR 4,729 crores, gaining 13.1% of the industry net inflow.
UTI was able to capture market share of 8.5% of the gross sales of the industry during the quarter. The total asset under management for UTI Group registered a growth of about 14% over the corresponding quarter of previous year and stood at INR 14.98 lakh crores as on 31st December '22, as a INR 13.11 lakh crores as on 31st December '21.
During the quarter ended review, UTI added 23,000 folios, taking up the number of live folios to 1.21 crores as on 31st December '22 from 1.16 crores as on 31st December 21. During the quarter, our number of SIP accounts rose by 3.6%, taking the total number of live SIP folios to 24.66 lakh as of 31st December 2022. The new SIP registered during the quarter was 2.30 lakhs. Our SIP AUM witnessed a growth of 18.6% over the corresponding quarter of last year, reaching to INR 21,495 crores as of 31st December '22 from INR 18,126 crores as on December '21.
The SIP inflow for the corporate stood at INR 1,656 crores, rising by 4.22% over the first quarter of the current fiscal year -- financial year and by 22.5% from the corresponding quarter last year. The SIP gross inflows for UTI Mutual Funds witnessed a year-on-year growth of 22.5% as again the industry growth of 21.6%, with an average ticket size of INR 3,231 for December '22.
Keeping our current line to deeper and better access to B-30 cities, that Beyond 30 cities, 23% of our monthly average AUM for December '22 comes from B-30 cities while the industry stood at 17% in terms of B-30 market of monthly average AUM. 108 of our 156 branches are in the B-30 cities.
So I would like to highlight some of the digital initiatives that we have taken at UTI in the last quarter. We have increased our distribution outreach by partnering with investment and distributor facing platforms and other aggregated platforms. The focus is on lead traffic and API-led partnerships. We have partnered more than 10 such platforms. In our digital efforts, we are aggressively investing in our digital marketing efforts, with the aim to acquire new customers as well as to create awareness by targeting relevant audience to paid marketing, along with engaging existing customers via multimedia campaign.
We are on the path to be a data-first organization riding on our analytics and personalization at scale and are working on multiple such initiatives, covering various business functions such as sales, digital marketing products, investment, et cetera. We have redone our contact center operations by riding on upgraded technology, digital solutions and scale resources for inbound and outbound calling, chat and co-browsing activities. This will result in enhanced customer service and customer delight.
We are on the path to cloud journey and moved 92% of the workload on Agile. And moving towards micro service-based architecture with an ultimate road map towards Office-on-the-go model. Our applications are secured to multilayer security architecture and encryption standards with incessant security surveillance in place, data classification and enhanced privacy controls are enabled too.
Now I turn my focus towards the UTI AMC financials. During the third quarter the company posted a consolidated net profit of INR 60 crores as against INR 127 crores in the quarter 3 of the financial year '22, reflecting a decline of 53%. The consolidated core net profit stood at INR 76 crores for this quarter. So that excludes the mark-to-market gain in terms of sale of investment and other non-operating income.
For the 9 months of FY '23, the consolidated core net profit stood at INR 253 crores, up by 1% as against INR 250 crores in the corresponding period of the last year. There is growth in the core profitability of the UTI Group. For UTI AMC stand-alone, the net profit of UTI AMC Limited in quarter 3 of FY '23 is INR 108 crores, reflecting an increase of 4% year-on-year as against INR 104 crores in the same period than last year and a decline of 9% quarter-on-quarter as against INR 119 crores in quarter 2 of FY '23.
The core net profit of UTI AMC Limited in quarter 3 of FY '23 is INR 50 crores, whereas the core income is at INR 226 crores in quarter 3 of FY '23, reflecting a slight decline of 4% quarter-on-quarter and is constant from quarter 3 of FY '22. For UTI Retirement Solutions, our AUM in UTI Retirement Solution has increased by 19% on closing basis to INR 2,30,560 crores from INR 1,93,331 crores in quarter 3 of FY '22. Part of UTI [ is still ] at INR 12 crores, an increase of 15% compared to the corresponding quarter of the last year.
UTI International Limited, the management fee of UTI International for the period ending December '23 stood at INR 33 crores, a decrease of 8% year-on-year from INR 36 crores for the corresponding period during '21.
UTI Capital Limited. UTI Capital Limited made a net loss of INR 1 crores during this quarter. The operating profit margin as a percentage of AUM for Q3 FY '23 was 15 basis points on a stand-alone basis.
Employee cost of the group. Employee cost of the group in quarter 3 of FY '23 was INR 104 crores, witnessing an increase of 7% year-on-year as against the AUM amount of INR 97 crores in quarter 3 of FY '22. For our subsidiaries, I would like to provide a brief highlight on the performance of our subsidiary. UTI International has an AUM of INR 23,826 crores as of 31st December '22. Our International clients are across 38 countries. They are primarily institutions, pension funds, insurance, banks and asset managers.
One of our flagship funds, the India Dynamic Equity Fund, domiciled in Ireland has an AUM of USD 1,080 million. UTI International J Safra Sarasin Responsible India fund and ESG Compliant India fund has an AUM of USD 82 million. UTI India Innovation fund launched in the first quarter has an AUM of USD 17 million. UTI Retirement Solution has been managing the NPS partners for government and nongovernment sector.
As on 31st December '22, its AUM is INR 2,30,560 crores, and this has a share of 27.01% of the industry India. UTI Capital with a total of INR 1,643 crores currently manages active debt funds like the UTI Structured Debt Opportunity fund, which is called as the SDOF-I launched in August 2017 and closed on May 2019. It has an AUM of INR 204 crores.
Currently, the fund is in exit mode. UTI SDOF-II, which was launched in September 2020 has an AUM of INR 507 crores and the fund is currently in fundraising stage as well as investing. UTI SDOF-II has a very well-defined ESG policy and strategy.
UTI Multi Opportunity Fund I, which was launched in March '22, has an AUM of INR 763 crores. Currently, the find is in investing stage. Further, UTI Capital has launched another fund, the UTI Structured Debt Opportunity Fund Growth Scheme Fund I, which was later rebranded as SDOF-III and it has an AUM of INR 169 crores.
I would now request the Managing Director and CEO, to give his concluding remarks.
Thank you, Sandeep. Thank you, Sandeep for sharing operational and financial highlights of our company. As we enter the Diamond Jubilee Year of UTI brand, I would like to reiterate our commitment to our investors and this nation. Our interest is on our people, process and performance. Is undeterred and continues to remain the backbone of our operational excellence.
With this, I would like to open the floor up for Q&A, and thank you for joining this call today.
[Operator Instructions] We have the first question from the line of Swarnabha Mukherjee from B&K Securities.
Two questions. So my first question is on the stand-alone business so the mutual fund business, the ETF was -- share has gone up quite significantly. And I think there is a bearing on the yield because of that. So if you could explain that, whether the yield, which has come down, is primarily because of ETF share increasing, or is there something else also at play there? As well as is this primarily the EPFO contribution? And how should we think about the ETF growth going ahead? So that would be the first question, sir.
Yes, the ETF business, during the previous quarter has actually gone up as a percentage to our overall AUM from 31% to 34%. Yes, I think the ETF charge and asset management fees of around, close to around 5 to 6 basis points that has that marginal drag on our overall weighted average AMC yield so if you see the weighted average AMC yield, which has marginally dipped from 38 basis points during the year's quarter to around 37%. And the corresponding AMC yield in the last financial year for this particular quarter were also 37 basis points. So a marginal impact as compared to the previous quarter.
And coming to the question that where the inflows are coming, primarily the inflow under the ETF category are from ETF 4 plus we have a lot of institutional clients as well who are investing in their provident fund monies into ETF 1.
Okay. So this is expected to continue going ahead at the same rate, right? So you should see the yield dilution also going ahead?
Yes, there will be a marginal yield dilution because of the growth in the ETF business.
But the absolute revenue will be up. Yes.
Yes. Got that, sir, of course, because the overall AUM is growing. Right. So my second question is on the international business side. So in the international business, I think sequentially, the AUM has gone down.
Sorry to interrupt, sir, there is a disturbance, which is coming along with your voice. May I request you use a handset, sir?
Yes. Is this better now?
Yes, sir. Please proceed.
Yes. So in my International business, there is a sequentially the AUM has gone down. So is this primarily due to mark-to-market loss? Or is there any kind of also any client loss or something like that has occurred which is resulting in this? And is this the primary reason why we see end-to-end of investments in the P&L of the International business, if you could highlight? And also on the expense increase in this business. So what is going on there, if you could let us know.
I will tell you about the client. We have not lost a single client. We have added more clients. And regarding our financial data about mark-to-market, Sandeep, over to you.
So if you -- so UTI International, which is a subsidiary of UTI AMC. It has invested in India Dynamic Equity Fund, which is a diversified equity offshore fund having a fund size of around INR 8,940 crores or about 1,080 million. The investment was provided as a seed capital for the fund. The book value of this investment is INR 116.2 crores. And the market value as on 31st December '22 was INR 280 crores. The impact in the financials is due to the decline in the NAV from September '22 and the currency impact for the reporting -- for the financial reporting purposes. As the fund has grown over time and the AUM has crossed 1 billion, UTI has reduced this investment by booking profits in '21 and '22. UTI will continue to redeem from the IDF gradually and reduce the investment further over the next 2 quarters. The fund has given an absolute return of around 86.32% from the inception in dollar terms and has steadily given management fees to UTI International over the years. So that is about the financials of the UTI International.
So as far as the expenses are concerned, the main expenses is our legal expenses to open our office in Paris. The UTI International is starting one of its offices in Paris to meet the requirements of European investors and is onetime legal expenses, which you will find in the profit & loss account of UT International. About the U.S. Because there will be some more expenses on your U.S. strategy as well.
Okay. So the run rate for UTI International will continue to remain at a similar level on the expense side then for upcoming quarters?
No, no. No. I'm saying only onetime expenses. The legal expense is one time. We need not to incur any more costs there.
Okay. But something will come from the U.S. also something we mentioned that, right?
You understand we are working it out. So next year, we will -- some more expenses may come as a onetime expenses.
But lastly it will be…
Yes. But may not be in this financial, may not be in this financial year. There's nothing in this financial year.
Lastly, on the fixed inflow share. So if I calculate the inflow numbers that you have provided and also the industry level data that we get. I think there is very minor, but there is some -- like in second decimal points kind of loss in market share. So can we -- should we think of this as fully like -- or be concerned on that in any way? Or is this just like a onetime division, if you could throw some light on that?
So speaking about the overall year or only for the equity fund?
So for the SIP. The number…
I think the market share is close to around 4.05% of the fresh inflow. In fact, that number has actually improved by 2 basis points for the last 2 quarters and so.
So I'm getting slightly bigger number, so I'll take this offline.
We have the next question from the line of Viraj Kacharia from Securities Investment.
I just have 3 questions. First is on the yield part. If I look at purely the domestic mutual fund business, we've seen a very sharp moderation in both sequentially and year-on-year so it's -- the moderation is in excess of 2.5 basis points. So if you can just kind of give some color, what is driving this? So if I have to compare the yield which we get now in new flows vis-a-vis the old source? What will be the flow -- yield which is accruing to us in the new…
Vinay?
No, I'm not sure which number are you looking at because yield on a sequential basis as well as on a year-on-year basis, there have been just a marginal decline. So corresponding on a year-on-year basis, also the yields were at 38 basis points with respect to the previous quarter also, the yield were 37. And for this particular quarter, quarter 3 of this financial year, the yield is around 37 basis points. That finally, as I stated earlier, is because of the growth in the ETF and the liquid fund business. In fact yield on the equity fund has actually marginally improved as compared to the previous quarter by around 1 basis point or so.
But having said that, still because of the growth in the ETF and the liquid business, there have been a marginal decline of yield in 1 basis point. Coming to the yield on the fresh business, I think we had stated earlier also, the yield on the fresh mobilizations are lower than compared to [indiscernible] and is almost 50% to 70% of the total distributable expense ratio get shared between the manufacturer and the distributor. So that will continue. As long we are going, there will be a marginal impact on the yield of the equity fund. As I stated in my earlier call also, I think profit margin is one number that you should look at it. And I think that number with the reduction in the cost going forward, that number will keep on increasing on a quarter-on-quarter basis.
So when I say yield on domestic business, I basically look at the earnings we had from our domestic business, revenue was around INR 216 crores. And if you look at the overall QAUM, which is around INR 2,40,000 crores. So we get a blended yield for the domestic, which is kind of somewhere around 35.9 or 36 basis points as against 38.5 last quarter and 38.5 again in the same year -- quarter last year.
Quarterly average number, what you said is INR 2,40,000 crores. Again, that the AMC fees number will come down to 37 basis points to 35.6. In this quarter is INR 216 crores actually.
Yes, sir, that's what I meant. And that's what I've been saying. So basically on that derivation, we get a yield moderation of somewhere around [ 2.5 ] basis points.
So I think Viraj, maybe we can connect offline, but the yield moderation, it's actually not even 1 basis point, it's less than 0.5 basis point as compared to the previous quarter as well as on the year-on-year basis as well.
Second question is on -- only on the cost structure. So the employee cost part for us, if I look at the overall performance in terms of, say, by the market share or incremental share in terms of the SIP flows also. And if I kind of correlate that with the overall mutual fund scheme performance, we have seen some kind of underperformance there vis-a-vis the market. So just trying to understand how should one really understand the performance in some payers or the resource in another part going forward and seeing?
See, on the incentive part, we are working -- we have provided in the accounts, which Surojit will tell you, his throat is bad -- so Sandeep will highlight the incentive plan. Indeed, the performance of our [ specialty casualty team ] is low. And now -- and based on the performance only we will pay the variable pay to our [ implies ]. So how much have we have approved this time?
So Viraj, if you see the variable pay, which is up, which are given to the employees are all based on a very well defined CRAs for investment as well as the sales team and are completely dependent on the performance of the team. And we have highlighted that whatever we have been accruing. So for the 9 months for this financial year, we have approved so far a variable pay of INR 43 crores, which is online with the performance of the scheme as well as the performance of the sales team. And we expect that this quarter will be equally be good for the organization based on our performance of our schemes as well as what we have been doing on the debt side. So it's not arbitrary. It's completely based on the CRAs that are there for all the sales team as well as the investment team.
Just 2 questions, and I'll come back in queue. One is, how much we have booked the performance incentive in -- how much we have booked in the current quarter? And second is our expectation in terms of employee cost itself was that itself keep on moderating. But every quarter, it's -- we see a very different and same increasing trend. So just trying to understand another absolute level also by when do you really expect costs to moderate down?
Yes. So Viraj, if you look at the ESOP costs that we have booked so far in the peak the total it's about INR 15.1 crores. And for the fourth quarter, because it is already peaked it is INR 5.70 crores. So our total comes to INR 20.8 crores on the in ESOP costs. On the employee cost if you see last quarter, also the quarter 2, the total costs which we had, including fixed cost, variable costs as well as insurance and welfare expense, it was INR 103 crores. And in this quarter, it is INR 104 crores. So there is not a significant change in the number.
Yes. And Viraj, one more thing, for the 9 months, if you see the employee cost, core employee cost is INR 265 crores, and the variable pay is INR 43 crores. So if only the core employee costs, if you just annualize it, it comes to around INR 353 crores. And FY '22, the core employee cost was INR 345 crores. If you just take a blanket 7% annual increment which we give, INR 345 crores figures should have been INR 369 crores. But we expect this financial year, this will be around INR 353 crores. So there is a downward trend in the overall core employee cost.
How much performance incentive in ESOP you said in the quarter, we have booked, for this particular quarter?
Look, for the quarter, it's about INR 6.53 crores on the ESOP costs and on the variable pay, which we have booked, it's about INR 14 crores.
The next question is from the line of Prayesh Jain from Motilal Oswal Financial Services.
So again, the question on the yields. Now if I look at your AUM growth on a sequential basis, it's simple. While your revenue MSPs is down by 4% sequentially when I compare sequentially, so from 2Q to 3Q. So that clearly indicates, and when we calculate the yields on basis we get a 2.5 basis point kind of a decline. What the previous caller was asking. So there is some -- I don't know, whether there is some disparity in the numbers. Secondly, on the same thing, last year around this time, there was some mention about you kind of front-ending the costs on certain schemes -- whether you are like for the full year, you contained the cost in Q3, while most of the companies kind of do it after Q3. And that used to -- that impacted the yields in 3Q of last year. Something similar, has that happened in this quarter, wherein your margins have been impacted and possibly some recovery can be expected in Q4?
Note, you rightly said the growth in the AUM of 4%, but then you have to see the category, which category of growth has actually happened. So in the hybrid category, there have been a slight degrowth because of redemption pressure, and that has actually come down. While the growth has actually happened in the ETF** category and the liquid category where the fees are actually lower. So that's why you can't compare the AUM growth along with the fees growth. And because of that, you are finding the difference.
But there is nothing of the expenses that happened last year...
No, no. No. So Prayesh, there was no front ending. What we had mentioned last time that variable pay was coming at a single quarter last year, but then we said that we will average it out over the 4 quarters. And that's what we have done this year. That isn't the AMT balance sheet. Nothing to do with the yields on the fee.
No, no. I'm talking about the scheme accounts only. Last year, 3Q, when the yield had dropped sequentially there was an explanation given that last year -- last year, again, the dip was from 42 bps in 2Q FY '22 to 38 bps in 3Q FY '22. Something similar kind of drop has happened in this year as per our calculation. And last time in 3Q FY '22, an explanation for -- were given for the yield that because on the scheme side, you kind of maintained the costs for the full year in this -- in particularly in third quarter, that's the reason the yields kind of fall. And that's the reason 4Q, we saw a recovery which went to 41 bps, something of -- so that's what can be expected in this year also? That is my question.
No, I don't think there is no concept of front end of the commissions or the fees as far as the team books are concerned. This particular quarter, the decline is primarily because of the growth in the ETF in medium term. And we expect to close the full year at around 37 to 38 basis points only.
Okay. So no expected...
I think there is some disconnect in the understanding. So may I request you to take it offline with Vinay, and Surojit.
Sure, I'll do that, sir.
So that this proper data can be exchanged and you get a very clear picture. There noting like the front ending and there's nothing like the back ending of any expenses. All our expenses are fully audited on daily basis. We all -- we have a concept of concurrent audit, where everything is audited on daily basis or NAV. And we have we carry out a limited review regularly. Our schemes also we do the -- half yearly limited review. So it's a part of very diligent transparent processes, there cannot be any front loaded or back loaded expenses accrual. There is some confusion about understanding. Therefore, I would request you to speak to Vinay off-line. He will give your data points, and that will give the better picture.
Sure, sir. I'll do that. I do that. And secondly on the talks in the media of about say the kind of thinking about constraining the expenses, especially TER ratios for the large A&Cs particularly having equity AUMs of INR 50,000 crores plus and also subsuming the GST rates and the brokerage rates into the TER, which were exclusive of the -- beyond the TER now. Any comments there that would be helpful.
And we appreciate, it's a regulatory issue. And with the media articles, we can't give any comment on the speculation. And whatever happens, it happens for the entire industry. So I respect that, and therefore, it's not appropriate for me, particularly representing UTI, to speak anything on speculation. So please wait for the -- if anything has to happen, it will happen, the new regulation will come, if it has to come, and that will uniformly applicable to the all asset managers. It will not be unique to us. And I can't comment on this, at this particular point of time.
And sir, my last question is on the debt side, where there has been a lot of outflows from the industry. Is there an expectation of the flows kind of coming back on the medium to longer duration? And how, in that scenario, how do you see the yield moving on the debt book for next year onwards? And how would that impact the overall yields as well? That was my last question.
I'm quite optimistic in the fresh inflows in the debt segment of the business. We at UTI, we are witnessing a positive inflow. I hand over to Vinay and Sandeep to answer your question. Sandeep, you start.
Yes. So if you see Prayesh, the '22 was a difficult financial year due to high global inflation and the ease of policy. Therefore, we saw a multiple number of factors which have led to inflation taking the front feet and driving significantly above the comfort level of the local central bank. To rein in this inflation, the central banks globally started hiking the interest rate, including our central bank, RBI.
Further to now the union budget, which was presented yesterday, it has created enabling conditions for sustained economic growth and maintaining high focus on capital spending, while ensuring best fiscal management. Market expectations, the policy rate are that it will peak at around 6.50%. And this presents a scenario where debt as an asset class looks relatively attractive at this juncture when real returns are positive, which was not the case in the last couple of years. So this is what I would like to say. And on the interest, Vinay, would you like to add…
I think we expect the policy rate to peak at around 6.5%. And we believe that there are several that the debt as a asset category should actually look attractive, especially on the division -- intermediate division strategy of 1 to 4 years. So some of those strategies like a short-term duration fund or a banking PSU fund, I think we expect to receive inflows under these categories of funds going forward.
And I think, yes, using this particular medium, I would request the investors to invest in the debt funds, is the right time to invest in.
So any impact on the debt -- because of the…
Policy rate we expect to peak at around 6.50%.
I'm asking about the debt AUM on which you're on a certain amount of yield is there…
But the yield is -- it flows to around 26, 27 basis points, yes.
That should move higher with the flows moving into the…
With slightly a longer duration product, that may improve by 1 basis point or 2.
The next question is from the line of Akshay Jain from JM Financial.
Sir, my question is again on the yield. So I was just back calculating. So like your equity and hybrid [ NSO ] AUM, that is down by around INR 800-odd crores. Even if I assume, say, a 1% yield on this for a quarter, the revenues would have been down by only INR 2.5-odd crores. However, revenue on a quarter-on-quarter basis is down by INR 9 crores to INR 10-odd crores. So what explains this decline in the revenue on a quarter-on-quarter basis?
So the revenue decline has been because of the lower AUM under the equity and the hybrid category. Because of that, there have been a marginal decline, almost around INR 7 crores decline under the equity and hybrid category because of mark-to-market depreciation under these 2 categories. And ETF, obviously, since yields are segmented at around 5.5 to 6 basis points. There have been an absolute growth as far as revenue is concerned, but marginal decline under the overall category to around 37 basis points.
So the main is because the [indiscernible] is down by INR 7 crores, mainly because of the INR 8 crores, mainly because of the mark m-to-m. Because as you know, the market has been very volatile, and therefore, this caused this impact.
I'll take it offline. Sir, next question is on one of your disclosures, sir. So looking at the disclosure for commission payout to distributors, which you put out annually. So I was just looking at the total numbers for FY '22, the total commission, which has been paid as per the disclosure is around INR 200-odd crores. And the total distributed AUM stands at around INR 30,000-odd crores. However, if I calculate, so like you say that around 70% of your equity AUM is distributed. So of the INR 1,00,000 crores; INR 70,000 crores would have been distributed. Like why is this discrepancy cycle. The total AUM distributors would have been close to around INR 70,000-odd crores. However, it is only showing at INR 30,000-odd crores. So any comment on this?
But that disclosure with respect to the total commission paid, including the commission paid on the stopping your business? It's not only on the press…
So yes, I'm talking about AUM only. So there, the total AUM is only INR 30,000-odd crores. I'm looking at the average AUM, the total of the 1,500-odd distributors which you have disclosed. However, if I calculate the total distribution -- distributed AUM, which is close to around say 70% of the equity AUM that comes to around INR 65,000 crores to INR 70,000-odd crores. So it's like only half of the AUM has been disclosed over here? So how does it work?
I think it is only for the top 1,000 or 1,500 distributors that the requirement. It's a regulatory requirement, which we have to give the data for, and it's above certain thresholds. So that's why that AUM and the commission which has been paid on an overall basis as Vinay mentioned it is on the -- it is the sales commission, which has been given. So that's why the number would be different.
So any specific on the threshold is like on the top 1,500? Or is there some amount of the threshold, it is there.
I'll have to check on that, Akshay. I can get back to you. Offhand, I don't remember whether it's on the AUM or there is a required -- regulatory requirement to disclose above a certain limit. I'll have to check what -- is it based on the top 1,500 or is it based on the AUM, if it is above INR 1 crore or something like that.
My next question is on the International side so like the International AUM has been declining for like past 5 or 6 quarters, so like it has declined from the highs of INR 35,000 crores to almost INR 24,000-odd crores in this quarter. So any specific reason for this, you'd like to attribute a number to? So there was around INR 60-odd crores [ NPM ] loss, which you have reported in this quarter in the International business. So what is the reason for the same?
First, on the NPM loss, as I just mentioned and I'll report this again. See UTI, IDF which is one of the funds where we have a fund size of around INR 8,940 crores or USD 1,080 million. The investment, which was provided as a seed capital and the book value of this investment is around INR 116.2 crores. And the market value as on 31st December was INR 280 crores. The impact of the financial is due to the decline in the NAV from September and the current impact on the financial reporting purpose. As the fund has grown over time and has crossed USD 1 billion, UTI has reduced the investment by booking profits over time.
And we will continue to reduce our exposure from IDF gradually. The fund has given an absolute return of 86.32% from inception in dollar terms and has driven steady management fees to UTI International over the years. And if you look at why the AUM has reduced, there is a marginal decline from the quarter 2, where the AUM was INR 25,105 crores to INR 23,826 crores. One of the primary reasons for the reduction was the fall in the AUM of UTI-India IDEF equity fund, which has gone down from INR 1,139 crores to INR 1,080 crores. And some of the equity funds have also gotten impact due to the market appreciation or depreciation.
So Akshay, let me just share with you UTI International has investment in 3 schemes as a seed investment, IDF, balanced fund and Innovation Fund. So there are M-to-M effect is of INR 24 crores is there, and the currency impact is of INR 38 crores is there. So total impact is INR 62 crores. IDF is down by INR 40 crores, balanced fund by INR 5 crores and Innovation fund by INR 17 crores. So therefore, the M-to-M both currency and the market is [ C2C ] growth. There's no significant change so far as the loss of investor is concerned. This particular product is very popular, and we are continuously receiving the money in this particular fund.
Sir, last question is on the cash on the balance sheet. So we have close to around -- yes. So what is the strategy on the cash that are around INR 3,200-odd crores of investments and cash in the balance sheet. So what is the strategy of utilizing this, going ahead? So like is there a plan for some dividend or some special dividend or anything like for this?
I -- we don't have any plan of giving any special dividend at this particular point of time. We have -- last year, we gave around 62% of our profit we distributed. And we are very sensitive about the cash management. We are also investing in the growth of the organization. As I indicated that some of the resources may be required, if the -- next year onwards, we will start investing in geographical expansion and also in our digital strategy. The Board has to decide, if the Board would like to consider a special dividend or not. This is not the CFO's perspective to take any call on that. So -- and now we are in the last quarter. We will discuss this at the end of this quarter. In the next call, you will have a better picture. Akshay?
And last question is again on the yield side, like what will be the current yields on the equity AUM? And #2, what will be the outlook going ahead? Like maybe if you can give some idea on it. How much of the AUM is still on the old regime where you have already paid upfront commissions. And what is the proportion of new…
We can comment only on the stock [ here ] that is close to around 77 to 78 basis points on the equity and hybrid category. On the fresh AUM yield, as I told you, it's very difficult to put any number of that because of the distribution expense ratio that varies from IFAs to IFA.
And Akshay, I also would like to mention it to you, we are seriously reviewing our sales strategy and in this sales strategy we are -- so the strategy we are reviewing. We are reviewing our sales strategy. So next call, we may better -- we will be in a better position to give you color about our -- what would be the likely yield for the next financial year '23-'24. So please give us some time and the market will also be a bit stable, there is a lot of volatility in the market.
The next question is from the line of [ Mohit from BOB Capital ].
Sir, my first question is in terms of the market share in equity. So last, if you look at for any quarters, we have -- I mean, the market share in equity is, overall, we have maintained but equity AUM has reduced. So any strategy to gain the market share in equity AUM?
We have -- we are quite focused in our equity strategy. Our team is continuously in touch. We have the 3 flagship product, we are pushing it very hard. And we are quite confident that our equity market share should improve on a quarter-on-quarter basis. As I mentioned to you for on every call, that we are quite focused on high-yielding assets. Our sales strategy should focus on high ending assets. We are quite committed. And the performance therefore also more or less is obviously on our side, and we will definitely improve our share in the equity scheme.
The most important thing I would like to mention is here, besides the number, is our investment team. I believe that we have got the right team in place. There are people with high ethical and moral values, very diligent and committed to our investors and stakeholders. So investment team in place, we have a right distribution team in place. We are quite focused to take -- go deep and lead in the market, more in top 50 cities and beyond 50 cities. So hopefully, we will see the good improvement in our equity market share as well as a part of our strategy. And I can't give you any number…
I think going into financial year '24. I mean, any plans to launch new schemes or any pipeline, if you can share with us?
Yes. We have Sandeep. So Mohit, if you look at in the last month, that is January, we launched 3 funds. One is the CRISIL SDL Maturity fund, then we launched the Focused -- income fund. And we launched the Nifty SDL Plus these 2 bond funds. We have the approval from the regulators for launching 5 funds. And depending on the market conditions, we'll be looking to launch this fund. It includes the Silver ETF, the Nifty 50 equal weight index funds. The FTI Series, another fund is that. The Nifty SDL Plus AAA PSU bond and the long-duration fund. But this will all be launched subject to market condition. So this is a pipeline of the funds which have been approved by the regulators so far.
The last question is just a clarification. So if I look at this consolidated, so this end-to-end loss that we had booked for this quarter, wherein it was income in the previous quarter was primarily because of the UTI International, right?
Yes, primarily UTI International.
The next question is from the line of Aman Shah from Jeetay Investment.
And this is the last question.
Sir, I'm just -- on a longer-term basis, my question is on the employee cost. If I just see our self versus the 3 other players are the AUM size of the other 3 players are roughly 20% to 40% higher when the total number of employees is lower by 20% to 40%. So there is roughly a 40% higher employee days like we are having. I know it will actually take time to correct it. But just wanted your thoughts, sir, how do we see like though the retirers that we are having, we are not substituting it with any new employees that is well appreciated. But beyond that, if we have tot his 40% of expanded employee base that we are having, how do we see that getting corrected over a medium term period?
One is the number which Sandeep has shared with you, there is improvement. As Surojit also mentioned that if you compare on the year to invest with the yearly salary increase, we are setting of around INR 20 crores to INR 24 crores -- INR 20 crores to INR 25 crores on a year-on-year basis. The question is now the high productivity and the rationalization of manpower, some of the manpower we may use also for the -- if we go -- if we expand our reach further. And we are also seriously thinking of the rationalization of the manpower. So you will have to give us some time in the next quarter we'll be in a better position to answer this. And detail the employee cost number, Sandeep shared with you and also Surojit. And Sandeep, can you share this number once again.
Yes. So if you look at the number of people who are retiring in this year, the total number is 60. In the next financial year, we have 50 more people who are retiring. And the year after, we have 71 more people retiring and in '25, '26, we have 111 people retiring. So if you see, there is a trend of retirement, which is continuing for the next 4, 5 years.
And then to explain this particular -- they are very -- quite committed.
So we won't see a substitution to this retirement, right?
We will not see any substitutions of retire of Class III, Class IV, non-manager staff we call, not at all. But we may see the substitutions in our sales team, but it will be a low cost. It will not be a high cost. These are the -- is the -- here duration employed for 30, 35 years. But when we have the new focus, the cost is almost 1/3. Or even more.
The second question was, sir, our quarterly net sales number, when I see that number in the category of equity and hybrid put together, our market share is much lower than what our book market share is of the AUM. So in Q3, we had a negative -- we had a net outflow of quarterly net sales. In Q2 also, we had a net outflow, while industry did saw a net inflow of the net sales number. So one is the performance part. The second is the sales part also where we are having -- the machinery is not quite -- would we want to make some changes in that sales machinery, sir?
Sales is our focus area, and we are working to revitalize, reenergize and reengineer our sales team. And Vinay, within you want to say something?
No, there's nothing more to it, we are reenergizing our -- reorganizing our sales team.
Ladies and gentlemen, this would be the last question for today. And the question is from the line of Abhijeet Sakhare from Kotak Securities.
Sir, on the cost line, again, where do you plan to end this year in terms of overall OpEx, if you could guide us toward some range? And then maybe some, let's say, indication for the overall OpEx growth for next year as well, that would be helpful.
What is the second question?
OpEx growth outlook for next year as well.
Yes. See, I will take it in 2 parts. The employee cost, if you see on a quarterly basis, it's almost stabilized around INR 104 crores, and it will be on a downward trend. And in respect of the OpEx, if you remember in the last call on October, also I said it should be in the range of INR 54 crores INR 55 crores. And on a consolidated basis, this year, also the other expenses is around INR 56 crores. So that should be our target and run rate, which should be around INR 55 crores to INR 56 crores.
And sir, you mentioned that in terms of variable staff cost, you said part of it is linked to fund performance if you could give some color in terms of how do you measure it? Like what's the time frame that you look at when you assess…
The different teams and different for the sales team, different for the investment team, we will not like to get into the details of the internal CRA system that we have because it's proprietary to the organization, and we have developed it over a period of time. So -- but be rest assured it is based on a very scientifically used qualitative and quantitative measures, which are there for the fund team as well as for the sales team.
But let me share with you. We -- when we calculate the incentify our investment team, we do consider the short-term, medium-term, long-term performance. We also consider the peer comparison and how we are performing with a -- we have a well laid down CRA, which we have. We are a very stringent system to monitor the performance. The performance of the Chief Executive and KMPs are monitored by the Board on a quarterly basis. So we have a very, very well laid down and a stringent review process with our NRC and the Board and a very, very [ tough frame ] within the system.
And lastly, we'll end the full year with the overall tax rate at close to 25%, right? There's been some volatility in that number?
It could be around 21%, 22% only.
21%, yes. And thank you.
As that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you, friends. Thank you for joining this call, and we continue to need your support, and thank you for supporting UTI and to the management team. Thank you so much.
Thank you, sir. Thank you, everyone, for your participation in our Q3 and 9 months FY '22-'23 earnings call. In case of any future queries, you may get in touch with Investor Relations team at Adfactors. We look forward to interacting. Thank you. On behalf of UTI Asset Management Company, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.