US-64 … the continuing saga

Though the most high-profile of UTI’s losses, from the investor point of view, it’s the least problematic—now that they’...

Though the most high-profile of UTI’s losses, from the investor point of view, it’s the least problematic—now that they’ve all got used to the fact that they’ve had to take a big hit on its price, Rs 14 at the time repurchases were suspended last year.

The government promised to support small investors, and allowed them to exit the scheme at the par value of Rs 10, provided they owned less than 5,000 units. But, for every month they held on, they were given a bonus of 10 paise per unit—in effect, this translated into an assured annual return of 12 per cent, which was higher than that offered by other safe investments. For those who owned above 5,000 units, the government guaranteed a price of Rs 10 by May 31, 2003.

With that date now not so far away, the question is: will there be a massive outflow from US-64? Who will finance the redemptions? Latest figures from UTI indicate that redemptions are far ahead of fresh inflows into the scheme. The total redemptions under US-64 touched Rs 910.87 crore for nine months ended April 2002 while sales, which commenced in January, stood at Rs 76.87 crore. Repurchases under the special window for the US-64, which opened from August last, were pegged at Rs 859.86 crore by April end and the redemptions at net asset value prices (since January) stood at Rs 51.01 crore, according to latest data available with UTI.

Sales in January 2002, the first month for NAV-based trading, stood at Rs 56.13 crore but in later months purchases of US-64 units dropped sharply at Rs 9.32 crore, Rs 4.07 crore and Rs 7.35 crore in February, March and April respectively. The repurchases, at NAV prices, in January were Rs 8.36 crore and grew in later months at Rs 9.94 crore, Rs 16.81 crore and Rs 15.90 crore in February, March and April, respectively. The repurchases, under special window, has shown declining trend with January figures quoting at peak of Rs 180.98 crore and dropping to Rs 56.39 crore for April.