US-64 disappoints

US-64 disappoints

UTI's dividend cut on US-64 hits hard small retail investors, most either pay a small tax or, like many senior citizens, nil tax. For them the reduced dividend of 13.5 per cent, tax-free, is a cruel trick. It makes no sense to tell them that the latest dividend is not as bad as it seems, compared with the 20-per cent, taxable, paid for 1997-98. Many retail investors after selling their US-64 holdings, on second thoughts reinvested in US-64, following finance minister's assurance that the scheme was sound and had government backing. Besides, investors found there weren't many alternatives to US-64. They have been stood up by the dividend cut and pared repurchase price of Rs 13.20; the latter means taking a capital loss to exit. For rich investors, corporates et al, one or two years' dividend-cut may not be a setback. They have staying power and can wait for better times; and tax-free dividend is a solace. This investor is in UTI's mind, the small investor for whom US-64 was created 35 years ago as a safe havenoffering a steady return has been given the short shrift.

Investors were prepared for a dividend cut to, say, 15 per cent. US-64 was expected to perform well with the rise of share prices (April-June). Besides, the scheme had received Rs 3,300 crore from the government. The lower-than-expected dividend is a big disappointment. Sure enough, US-64's reserves , which were negative, are now positive. Even so, it is far from certain if the units' NAV is much higher than its par value of Rs 10. This means the pressure to ploughback will be keen; the 13.5-per cent dividend is far from secure for the coming year. The trust proposes to cut the proportion of equity investments in favour of low fixed income securities. US-64 is slated to become an unrewarding investment.

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