For those who had parked their money in the fund, the gains translate into a hefty 12 per cent in just one month. While the units were being sold at Rs 14.37, the NAV had moved up by 10.67 per cent to Rs 15.45 on March 5. At the sale price of Rs 14.37, investors entered the fund at a discount of seven per cent to the March 5 NAV. An interval fund, UGS 10000 opens for sale and repurchase for a week on the first Monday of every month.

``The gains work out to 14 per cent as intermediaries pass on the commission of 2 per cent to investors from the 2-1/2 per cent brokerage they get from UTI,'' said an analyst. With political uncertainty loominglarge and the market falling by a hefty 167 points on Monday, speculators are likely to press for redemption of units this week. ``If short-term investors hold-on, they will be exposed to the vagaries of the market till the first week of May when the fund opens again for sale and repurchase,'' said a sector observer.

Since the repurchase of units on March 31 NAV of Rs 16.09, the market has fallen by 6 per cent or 221 points. Clearly, UGS 10000 will pay a price, which is higher than the underlying value of units to investors who prefer to redeem. Besides, redemption in bulk will force the fund to sell its holdings in a falling market, which could result in losses.

``The case of UGS 10000 amply demonstrates what faulty pricing of units can do to the fund and long-term investors, especially in a falling market. Due to redemption pressures, you are forced to sell your liquid holdings at a lower price and it hits the NAV. Second, you do not have those holdings to recoup the losses when the market rises,''elaborates an analyst.

Till March 31, UGS 10000 had a corpus of Rs 194 crore of which 20 per cent is invested in Hindustan Lever Limited (HLL) alone. Another 16 per cent is held in cash. Since inception, UGS 10000 has given a return of 60.9 per cent. The fund holds 75 per cent of its investments in FMCG and pharma stocks. Besides, HLL, the top holdings are ITC, Nestle, Glaxo and Smithkline Consumer.