The 1999 Union Budget provided special income tax incentives to mutual funds which are open-end-end in nature and oriented towards equity. Mastershare '86 (from the Unit Trust of India stable), a scheme where small investors have invested, is today quoting in the market at Rs 14, while its net asset value stands at Rs 21.In other words, small investors are getting 50 per cent less than the intrinsic value of their units. In view of the budgetary incentives, would it not be prudent for UTI to make the scheme open-end? It will benefit the fund as well as the investors. The fund will save 11 per cent income tax, which is now payable as the fund is close-end in nature. Further the hug gap between the market price and the NAV will narrow down considerably.
Thus, small investors will be able to able to realise the real worth of their investment. There is a fear in some quarters that once the scheme becomes open-end, the performance may suffer. However, that seems a little far-fetched. One needs to look at 4-5 private sector mutual funds to appreciate what expert fund managers can do for their funds.
Their open-end schemes have earned a return of more than 70 for their unit-holders. Will UTI wake up to the market fancy for open-end schemes and get its act together for the sake of small investors.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.