• Investment World
• eWorld
• Catalyst
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

S. Vaidya Nathan

THE NAV being at Rs 5.81 per unit may seem tempting to take fresh exposures in US-64. But this is something to be avoided for the following reasons:

With the assured repurchase prices under the two liquidity packages that are 42 per cent and 62 per cent higher than the NAV, there is limited prospect of the NAV seeing such a jump by May 2003. In the event, existing investors could be expected to opt for redemption at the promised prices. If they fail to exercise the option, they run the risk of erosion in portfolio value, as the Government promise of redemption at the indicated prices will no longer be applicable. A massive redemption pressure in in 2003 may force the UTI management to liquidate its holdings, leading to a further erosion in asset values to the disadvantage of fresh investors into the scheme.

The scheme is not as yet fully compliant with SEBI mutual fund norms. Without knowing where the lack of compliance is, investors would be taking a big risk if they invest fresh funds or re-invest dividends in the scheme as the umbrella of government protection to such fresh investments is no longer available.

UTI plans to re-position US-64 as a balanced fund with a higher exposure to debt. The equity component may be 25-55 per cent. It has an equity component of 61 per cent now. This is to be reduced to at least 55 per cent by end 2002. This process would involve impact costs due to size and portfolio quality that could drag down the performance. The shape of the revenue stream and the likely returns that may be generated by the new profile is a big unknown factor especially given the scheme's size and the impending restructuring.

No more bail-outs are likely from the Government, and better options abound. Investors with a penchant for risk can opt for a range of schemes such as The Alliance 95 Fund or Pioneer ITI Pension Plan. Or they can opt for a combination of growth schemes such as Zuruch India Tax Saver, Zurich India Equity, Pioneer ITI Bluechip, Templeton India Growth and income schemes such as Sundaram Bond Saver, Pioneer ITI Income Builder, UTI Bond Fund and LIC Bond Fund. Or if you are the risk averse type, look for avenues such PPF, Kisan Vikas Patra, POMIS etc

The gap between the NAV and the realisable value of investments may be higher in the case of US-64, given its size, than in other schemes.

In any case, the absolute level of the NAV is irrelevant as far as investment decision-making goes. That only affects the number of units you get for a given amount, What matters is the likely performance, and here the track record of US-64 does not inspire confidence.

Send this article to Friends by E-Mail

Stories in this Section
Forbes Gokak: Accept the higher priced options on last date

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line