BOI Double Square Plus -- Another bailout candidate?

S. Vaidya Nathan

A CLOSE-end equity growth fund of BOI Mutual Fund, BOI Double Square Plus, was up for redemption on August 31.

The fund would have had to take some support from the sponsor, Bank of India, to fulfill the commitment made at the time of the fund's initial offering.

BOI Mutual Fund had guaranteed a redemption price of Rs. 400 per unit (at least four times the face value (Rs. 100) of the units) at the time of launch in August 1990. The fund has an NAV of around Rs. 370 per unit. The fund had a corpus of Rs. 351 crores as of March 31, 1999, and Rs. 349 crores as of March 2000. The shortfall of around Rs. 30 per unit could mean close to Rs. 100 crores in the aggregate.

BOI Mutual Fund's Double Square Plus is the latest to join the fairly long list of schemes that required a bailout package from their sponsors. Bank of India may have to foot the bill in this case. If the fund sticks to offering Rs. 400 per unit for original allottees, the bailout package size may be lower.

If this materialises, it would take the cost of bail-outs to sponsors (not including the shortfall in the UTI schemes) to around Rs. 1,750 crores. This has been a stiff price to pay. It highlights, once again, the lack of quality management. To generate 14.87 per cent per annum (implied rate in the case of BOI Double Square Plus) over the last decade may not have been a problem with quality fund management.

The second aspect that this case highlights is the risk of offering assured returns, in general, and in equity-oriented schemes, in particular. From the point of view of investors, the BOI Double Square Plus case endorses the importance of evaluating actual investment performance, rather than going by assurance of returns.

In this case, Bank of India has offered a special deposit scheme for investors who would be getting redemption proceeds. The scheme, called the Centenary Deposit Scheme, offers to double investors' money in the next 84 months. The implied rate on offer is around 10 per cent. The scheme is open for subscription for one-and-a-half months.

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As of March 31, the fund had a capital base of Rs. 349.00 crores. Its reserves were Rs. 812.14 crores, and it had Rs. 440.59 crores in equities and an equivalent amount in government securities.

EOF dividend: The Unit Trust of India (UTI) has declared a maiden dividend of 15 per cent (Rs. 1.50 per unit of Rs. 10) for its Equity Opportunity Fund. The book closure is between September 4 and September 9. The Equity Opportunity Fund was launched in May 1996 and is a close-end fund.

Jardine buyback: Jardine Fleming India Fund Inc, an investment fund owned by Chase Manhattan Corp, has announced that it would make a tender offer to buy up to 25 per cent of its own shares. The fund has announced this as part of its plans to narrow the discount between the share price and its net asset value.

The Jardine Fleming India Fund, Inc., reported a total return of minus 35.60 per cent for the three months ending May 2000. There was no income distribution during this period. The NAV had declined to 15.66. The fund trades at a discount of 25-30 per cent. For the first six months of 2000, it returned 5.8 per cent based on the NAV, and broke even on its share price. Total net assets on May 31, 2000 were $153.3 millions, down from $160.9 millions at end 1999.

On May 31, 2000 the top ten largest equity holdings were Infosys Technologies, Hindustan Lever, Satyam Computer, Sterlite Industries, Reliance Industries, ITC, NIIT, Himachal Futuristic, Hindalco and MTNL.

Jardine Fleming India Fund, Inc., is advised by Jardine Fleming International Management, Inc., an investment management and advisory Company. The owners, Chase Manhattan Corporation, had assets in excess of $400 billions under management.

K-Liquid Fund: Kotak Mahindra Mutual Fund is to launch a liquid fund by September. The fund would be targeted at high net-worth investors and the corporate sector. The minimum investment amount is Rs. 5,00,000. The K-Liquid fund will invest in short-term money market instruments.

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US-64 prices: The Unit Trust of India has fixed the sale price and repurchase price for US-64 at Rs. 13.65 per unit and Rs. 13.35 per unit respectively for August. These prices represent a 15 paise rise over the July prices.