BOMBAY, 29 September 2003 — After all the flak which the largest mutual fund of India, Unit Trust of India (UTI), had been drawing for the past few months, now seems to be undergoing a change. Slowly but surely, one can now see that UTI is indeed becoming more dynamic. And this is proving to be beneficial to the investors of UTI, especially more so for the investors of its scheme, Mastershare.
First a quick flashback. Mastershare was launched as a closed-ended equity scheme on Sept. 19, 1986 for seven years and subsequently rolled over for another 10 years. It was due for termination in October 2003. However, UTI decided to make the scheme open-ended and received the necessary approval from the Securities and Exchange Board of India. (SEBI). UTI MF (UTI is now renamed as UTI Mutual Fund) allowed all existing unitholders of Mastershare to exit the scheme whenever they wanted, without any exit load from Aug. 13. The scheme has about 5.6 lakh investors. Mastershare has now become an open ended scheme, starting from Sept. 12, meaning that one can now buy and sell the units at any given point of time at its net asset value (NAV).
Mastershare has announced a dividend for the last 16 years since its inception. The exit option was given to investors when the stock market is booming and the NAV of the scheme has appreciated substantially. The fund has returned 27.7 percent for the last one year and 11.6 percent since inception. Mastershare is the second closed-ended equity fund of UTI MF to go open this year. Earlier, it had made Mastervalue open and the fund has been one of the best performing schemes in recent months.
What proved the resilience of the scheme was that when the fund went open ended from Aug. 12, there was no real rush to redeem the units of Mastershare. Investors stuck with the scheme, despite the exit option given to them. Fearing large-scale redemption, the UTI Mutual Fund had kept Rs.2.00 billion cash in the scheme. Since there were no large redemptions, the MF has begun reinvesting some of the funds in the market.
So why did the investors not opt for the exit route? Well, the reason was not far to find. Firstly, the scheme has been doing well, as has been indicated by the rising NAV over the past few months. And with the stock market riding a buoyant phase, naturally, it was expected that the NAV would only get bolstered further. Mastershare, which comprises top blue-chip stocks and figure in the top ten stocks by exposure, have gained immensely in the current ongoing bull rally.
Moreover, keeping with its tradition of declaring dividend, Mastershare declared a high dividend of 14 percent. Investors were given the opportunity to invest by Sept. 18 and benefit from the dividend. The dividend was available to all those investors whose names appear in the books as on Sept. 18, 2002.
This meant that investors who had stayed invested stood to gain Rs.1.4 per unit and that too tax-free returns. And those who want to but it now, can do so at the current NAV which is hovering in the region of Rs.14-15 per unit. And for these investors the yield comes to slightly lower than 10 percent on the investment made. So it made more sense to have stuck with the scheme as 14 percent was quite a significant rate of dividend and would have surely benefited the old investors, especially those who have bought the units at lower prices in the past.
Now Mastershare has become open ended. So what does an investor do now?
With the economy performing well during the current financial year, agricultural growth also perking up due to normal rainfall, it seems sure that the markets might continue to show strength for some months now. The added advantage now is that scheme has become open ended, so they can exit whenever they now want to.
What about those contemplating entering the scheme now? Well, that is not such a great idea as all the advantages which one would have gained a few months back, is now over. And the NAV, as such is up, so one does not know if the entry into the scheme is made at a high price, then maybe the exit will not offer too much of a gain. For long-term investors, get into the scheme when there is a decline.
Hopefully, that should not come in for a long time now!