UTI Mahila Unit Scheme: Avoid

Recommendation: Avoid

Aarati Krishnan

THE Unit Trust of India has made a new offer for women over 18 years of age.

Mahila Unit scheme is an open-end fund, open for subscription at Rs 10. The fund proposes to invest around 70 per cent of assets in debt and money market instruments and up to 30 per cent in equities. The fund is open only to women who have attained 18 years of age.

Once the initial offer closes, units will be offered at the prevailing net asset value (NAV). The terms of the fund are complicated. The fund offers two options -- a regular plan, and the gift plan, where a woman can be made the beneficiary.

The fund offers liquidity under two repurchase options -- the Festival Cash Option and Growth Option. The former allows unitholders to withdraw amounts to the extent of appreciation in NAV each year, at pre-determined occasions (festivals and school holidays). These repurchases will be at a 1 per cent discount to the prevailing NAV. However, investors who wish to redeem their remaining holdings will have to do so at a discount of 5 per cent, 4 per cent and 3 per cent to the prevailing NAV, in the first, second and third year respectively.

The Growth Option offers better liquidity, allowing full or partial repurchase at any time of the investor's choice. However, the fund discourages exit in the first three years by redeeming units at a 5 per cent, 4 per cent and 3 per cent discount to the NAV in the first, second and third year respectively.

Investors can avoid investment in this offer for the following reasons:

* The Mahila Unit Scheme is no different from a conservative balanced fund. Though the UTI manages several debt and equity funds, it has an inconsistent track record of performance. Therefore, it would not appear to be the desirable option for investing long-term savings.

* The exit load of 5 per cent, 4 per cent and 3 per cent proposed to be levied by the fund for redemption in the first three years is high. While equity-oriented funds usually charge an exit load of no more than 2 per cent, debt funds, given the already lower returns, usually do not charge an exit load of over 1 per cent. There is no reason why investors should forego these returns if they seek a premature exit.

* Since the fund is to invest mainly in debt, the exit load has the potential to reduce returns by a significant amount.

* Instead of the Mahila Unit Scheme, investors can divide investments among two of the better performing debt and equity funds which are open ended, in the desired proportion. In such funds, the investor will have the flexibility to withdraw investments at any point in time, in the event of her requiring cash. Given the stiff exit load levied by the Mahila Unit Fund in the first three years, investors may also lose the flexibility to exit the fund in the event of unsatisfactory performance.

Nature of fund :Open end

Investment profile :70 per cent debt/30 per cent equity

Objective :Appreciation

Fund manager :Unit Trust of India

Issue opens/closes :March 8 2001/April 6 2001

Liquidity :Repurchase

Minimum subscription

Regular Plan: Rs.5000

Gift Plan where units are purchased against pre-denominated amount: Rs 1,100/Rs 2,100/Rs 5,100, multiples Gift Plan (other than above): Rs 5,000

Subsequent minimum investment:Rs 1,000

Subsequent minimum investment for Festival Cash Option: Rs 5,000