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US-64 suspension may up investors' ante: Analysts

Ashok Jainani

MUMBAI, July 2

THE Unit Trust of India (UTI) blew the alarmbells by suspending sales and repurchases under its largest scheme, Unit Scheme-1964 (US-64), and the most preferred by the common-risk-averse investor. UTI has suspended fresh sales/repurchases under US-64 up to December 2001. Practically, UTI has stopped repurchases for seven months as the scheme is closed since June 1.

And this may attract investors' wrath, if not individual then corporate investors, by filing of litigations as UTI ``cannot stop anyone from exiting at whatever repurchase price or net asset value (NAV) of the scheme,'' a treasury head of a corporate sai d.

The UTI Chief General Manager, Dr S.S. Nayak, told Business Line that UTI will defend litigations, if any, in the court.

With the slashing of dividend to 10 per cent (Re 1 per unit) from 13.75 per cent last year, the yield this year is lower. This takes the effective yield to 7.4 per cent for investors who bought the units at Rs 13.50 last July.

Considering the repurchase discount, the yield will still be lower or negligible, analysts said. If one were to sell after the scheme reopens or in the secondary market, one would have to suffer capital erosion, analysts said.

UTI has said that the suspension would not affect investors as the US-64 units are listed on stock exchanges. ``People will sell in private which could create further panic thereby blowing a fundamental risk to the market,'' analysts said.

The units might be traded at nearly half the sale price, which is near its intrinsic value or NAV, in the secondary markets. Some of the banks had recently removed US-64 from the list of approved securities for advancing loans and some had raised the mar gin cover for loans against US-64 to reflect its intrinsic value.

Even if UTI has a right to effect changes in the features of the scheme, it could you restrict redemptions but not stop it altogether, investors said. ``Else, UTI must give time and an option to the existing investors if they want to get out,'' fund mana gers and few small investors said.

``UTI introduced US-64 37 years ago as a savings vehicle for the common man. Today, UTI used the same vehicle to shatter the dreams of same common man,'' investors said.