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UTI says US-64 fund payout may begin sooner

The Unit Trust of India, India's largest mutual fund manager, said on Tuesday it might resume redemptions from its biggest fund as soon as the stock market improved.

UTI, which manages 65 per cent of the assets held by the Indian mutual fund industry, on Monday suspended sales and repurchases in its flagship fund - Unit Scheme-64 (US-64) -- up to the year-end after a recent sharp rise in withdrawals triggered by declining performance.

"Sales and repurchases for US-64 could be resumed as soon as the markets improve. It could be well within the period of six months," UTI chairman P S Subramanyam said.

State-run UTI manages 87 schemes, and is the largest single investor in Indian markets, controlling Rs 600 billion, a quarter of which is invested through US-64.

On Monday UTI reported its performance for the past year to June and stated reserves of its US-64 scheme may be "negative".

That means reserves built up in the previous years may have been exhausted and the investment portfolio depleted by redeeming units at above net asset value - or the unit's real worth based on the market value of the fund's investment.

UTI also cut the US-64 dividend to 10 per cent from 13.75 per cent the previous year as the scheme's income plunged 41.3 per cent to Rs 15.24 billion.

Subramanyam said the series of regulatory changes in the Indian stock market that took effect on Monday had made him hopeful the market would recover soon.

"Good events have happened after the fall in the market. There is a separate cash and a futures market, carry-forward trading has been banned," Subramanyam said. "All this is leading to the orderly growth of the market."

From July 2, the Indian markets entered a new phase with a ban on carry-forward trading, the simultaneous introduction of options trading on 31 blue chip stocks, and the movement of 450 of the most liquid stocks into rolling settlement.

Earlier in May, the market watchdog announced the pending ban on carry-forward trading to reduce market volatility and the influence by speculators.

Carry-forward allows investors to take on bigger positions than they could otherwise afford by buying stocks on credit and postponing settlement almost indefinitely by paying a small charge.

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