BOMBAY, 15 October — This week, we take a look at the latest happenings in the largest public sector mutual fund of India — the Unit Trust of India (UTI). And more into what exactly is the scene now in the beleaguered flagship scheme of the fund — US 64.
As we all know, the scheme ran into trouble once again. After this, the fund came out with a rescue plan to help bring back the drowning investors back to the shores.
In order to avoid the deluge of investors rushing in to liquidate their holdings in the scheme, the fund announced the temporary suspension of sale and repurchase of US 64, up to 6 months. Following this, US 64 is now being restructured with a view to making it a well-diversified and balanced fund.
This is also expected to facilitate the transition of US 64 from administered pricing to NAV-based pricing by Jan. 1, 2002.
The fund has said that the interest of the small investor is being safeguarded by providing an assured repurchase price up to 3000 units for a period of nearly 2 years.
The liquidity option has been created basically for the small investors of US 64, who may be in urgent need of funds. Unit holders will note that while they get an opportunity to create liquidity by repurchasing their holding upto 3000 units, it would be worthwhile to recognize the benefit of the assured repurchase price offered under the package, which will increase from month to month. Each investor holding units as on June 30, 2001 may offer up to 3000 units for repurchase at any time from Aug. 1, 2001 to May 31, 2003 at prices given by the fund. Every month, the repurchase price goes up 10 paise. It was at Rs.10 per unit in August 2001, then at Rs.10.10 in September 2001, now in November it is at Rs.10.30 and this way, eventually by May 2003, it reaches Rs.12. Book closure is every June.
How this works is that if you have 3010 units, UTI will repurchase upto 3000 units and for the balance 10 units a fresh membership advice (M/A) will be issued for holding it upto Dec. 31, 2001. The balance 10 units can be repurchased at the NAV based price on or after Jan. 1, 2002.
Alternatively, if you tender all your 3010 units on or after Jan. 1, 2002, your first 3000 units will be repurchased at the price offered in the month of submission or NAV based price, whichever is higher. The balance 10 units will be repurchased at the NAV based repurchase price prevailing in that month.
But if you have tendered for transfer in your name (i.e. as transferee) in the month of July 1 you will not be eligible for repurchase under the package. You can, however, repurchase these units at the NAV based price from the month of January 2002.
If you buy units from the secondary market, you cannot use this package of repurchase, as it is only for those unitholders who were on US 64’s books as on 30th June 2001. You can repurchase the holding acquired through market operations after Jan. 1, 2002 at the NAV based price.
The dividend, if any, for 2001-02 will be paid to only those unitholders whose name is registered in US 64’s books as on 30th June 2002 or any other record date for the year 2001-02 and 30th June 2003 or any other record date for the year 2002-03. In other words, if you do not repurchase your holding under the package or otherwise, earlier than the record date/s for dividend, you will be entitled to dividend for that year.
Given the track record of US-64, naturally, the first question which comes to mind is whether or not the scheme would be able to meet the payment obligations. Though it is true that the longer you wait, the more you get but what is the guarantee that UTI will be able to pay. Putting these doubts to rest, UTI assures all the investors that adequate liquidity arrangements have been made to ensure that any funds needed for redemption will be available to UTI without it having to resort to large-scale sale of its investments in the market. And what happens is there is a deficit? UTI states that the deficit, if any, between the offered repurchase price and the NAV will be met and funded from sources external to the scheme. Well, that is as reassuring as reassuring gets! So what does the investor do now — hold US-64 or sell it as fast as possible? Well, there is no doubt that if one holds on to their US 64 units, the investor stands to gain in the long-term, since the assured repurchase price under the package will increase from month to month. Moreover UTI has also reassured that it will ensure that a deficit does not arise, hence if you have faith in UTI and the patience to wait, maybe that is the best option under the given circumstances.
