Day One redemptions at a trickle as US-64 goes NAV

Sujoy Manna

Mumbai, Jan 1: Contrary to fears of a negative response from investors and widespread redemptions, Unit Trust of India on Tuesday witnessed only a trickle of Rs 5 lakh worth of redemptions at NAV-linked prices in its flagship US-64 on the first day of its going to the NAV mode. What is more, the fund major also managed to sell new units worth Rs 2.5 crore at Monday’s (Dec 31) NAV of Rs 5.99.

Further, the redemptions of earlier investments at the administered price of Rs 10.50 for January (’02), were placed at Rs 12 crore, taking the total redemptions since last August to around Rs 430 crore.
On Tuesday, the scheme was formally made NAV-based and was opened for fresh sales and repurchases after it was suspended temporarily last July. Also from Tuesday, the limit for small investors to redeem at the administered price has been upped at 5,000 units from 3,000 units earlier. This could have led to some of the smaller unitholders coming to avail of the higher redemption limit, UTI sources said.

The US-64 scheme’s NAV on January 1 (Tuesday) was pegged at Rs 5.97, marginally down from Monday’s (Dec 31) NAV level.
The exit load announced by the trust on Monday, too, prevented the investors from quitting the scheme, especially the ones who had entered the scheme just 12 moths ago at a higher price of around Rs 14.50 per unit. There is no exit load, however, for investors with more than three years into the beleaguered scheme.

Thus, Tuesday’s overall response, according to senior UTI sources, from small investors, both in terms of lower-than-anticipated redemptions at the administered prices and fresh sales of new units to retail investors at NAV-based price, “showed that the scheme continues to be a good investment opportunity”. This was because the current NAV was around Rs 6 which over the next few months would go up, backed by the expected bouyancy on the stock market.

“For various reasons, including fresh money from FIIs and turnaround in sentiments, the Sensex is expected to go up to around 3,700 levels, up from the present 3200,” points, UTI source said, adding, “this, therefore, would translate into a NAV gain of Rs 1-2 which is a good return on Rs 6 (current NAV) as returns on US-64 units are tax free.”

The UTI management has been confident of the investors’ perception and therefore, of a manageable redemption level for the scheme. Since the problems surfaced at UTI last July, the management has suitably modified the various provisions of US-64 and made the scheme formally a balanced scheme. The equity component accordingly would be a maximum 55 per cent from the present level of over 61 per cent, down from a high of around 80 per cent early last year. Subsequently, the scheme has also made increased investments in debt products.