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US-64 unlikely to be NAV-linked by Feb '02

Rakesh P Sharma

Unit Trust of India is unlikely to link flagship US-64 to its net asset value by February 2002. This is being done to ward off the panic that has gripped the market and led corporates to make a beeline for redeeming their US-64 holdings.

UTI is also expected to announce a dividend payout of around 9 per cent for US-64, down from 13.75 per cent last year. This is in line with the rate of return offered by the public provident fund (9.5 per cent) and the RBI relief bond (8.5 per cent). The curtailment in dividend is likely to reflect its eroding net asset value.

Although UTI brass refused to comment on the NAV issue, market sources said there have been informal discussions with the finance ministry on this issue. A formal decision will be taken at the trust board meeting on July 2.

"Though the Deepak Parekh panel submitted its report in February 1999, the government-sponsored rehabilitation package (Special Unit Scheme-99) was only implemented and funded at the end of June 1999. If one looks at a three-year time-frame, US-64 can be NAV-based by July 2002. Moreover, linking US-64 to NAV was a recommendation of the (Deepak Parekh) panel and not a mandate by the government," said a source.

The UTI board is meeting on July 2 to declare dividend on its flagship scheme. If it decides to postpone announcing the NAV of US-64 to July 2002, it effectively gets one year to put its house in order (UTI's financial year runs July to June). US-64 is UTI's oldest fund with assets of around Rs 180 billion under its management.

UTI witnessed a net outflow of Rs 19.26 billion in May. According to officials there, it was solely due to redemptions in US-64. Otherwise, they say collections are more or less on par with other funds.

Panic-stricken corporates are shifting from US-64 to bank deposits and LIC's Bima Nivesh. "If UTI does not link US-64 to NAV in February next year, corporates are likely to stop fleeing the scheme. Once the stock market looks up, it will be easier for the trust to gradually shift to NAV instead of announcing the cut-off point at this moment," said a source.

UTI is also expected to substantially scale down the repurchase and sale price of US-64 in July. Traditionally, the price for US-64 units is at its lowest in July after the dividend, and it inches up to a peak in May next year. For instance, the sale price was pegged at Rs 13.50 in July last year and rose through the months to Rs 14.55. On the other hand, the repurchase price went up from Rs 13.20 to Rs 14.25.

The post-Budget crash in the equity market has triggered the erosion in the net asset value of US-64. The scheme reported a net income of Rs 13.64 billion for the first half ending December 2000. At present, the scheme has around 63 per cent exposure in various debt schemes and the balance in the equity market.

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