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New investors buy US-64

Aabhas Pandya

Two years after US-64 was rocked by poor performance and negative reserves, investors are beginning to repose faith in India's largest mutual fund scheme. Unit Trust of India's flagship scheme, US-64 has seen a 56 per cent jump in new investors, with 155,000 investors joining the fund for the first quarter ended September 30, 2000. The number of new investors was 88,000 in the first quarter of the previous year.

The sale of fresh units has raked in Rs 13 billion. This does not include units issued in lieu of reinvestment of dividend - around Rs 7 billion - which takes the total inflows to Rs 20 billion. The scheme had declared a dividend of 13.75 per cent for 1999-2000. Fresh investments in the fund were around Rs 16 billion for the first quarter last year. On the other hand, the fund has seen a redemption of Rs 5.32 billion, down 27 per cent from Rs 6.75 billion last year, which takes net inflows in the first quarter to Rs 14.68 billion.

That investors are finding merit in investing in US-64 is attributed to a couple of reasons. One, with the sharp fall in most equity funds and volatility in debt funds this year, US-64 has once again conjured the image of a "safe investment option" among investors, which also pays an annual dividend. Even the recently concluded SEBI-NCAER investor survey reveals that US-64 units are ranked third after bank deposits and gold among investment options.

At the same time, UTI has taken recourse to aggressive populist claims, where investments in US-64 are drummed to be a huge success. Despite the problems, which had besieged US-64 in 1998 simply because it was paying more than it was earning, UTI has been successful in creating a positive sentiment for the scheme. The general belief is that all is well with US-64 now. Add to it, dividend is now tax-free from the fund and a section of investors believe that a tax-free payout of around 14 per cent is better than investing in a volatile equity or balanced fund and not getting anything at all. Fortunately or unfortunately, although US-64 also does not guarantee a dividend, it is still perceived as "some kind" of an assured return scheme.

US-64 units are sold and repurchased at a fixed price, which is not linked to the net asset value. In fact, UTI has never disclosed the NAV of US-64. The prices are decided by UTI on a monthly basis and progressively increased every month. Thus, the lower sale price at the beginning of UTI's new financial year (in July) also spurs investments in US-64. For instance, the sale price in July this year was Rs 13.50 per unit. This has now gone up by 40 paise to Rs 13.90 for October while the repurchase price is Rs 13.60 for the month.

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