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AT Rs 5.81, the net asset value of US-64 has shocked even those who had been prepared for the worst. If investor confidence in the UTI now plumbs newer depths, it would be no surprise. Investors can be expected to opt for the assured repurchase price package announced for May 2003. The prices on offer then are higher by 42 per cent for holdings in excess of 5,000 units, and 62 per cent for less than that. Confident in the government assurance, investors are sure to stay on till then. But that a repurchase price is being assured would in no way improve investor confidence in the UTI as this may be the last such bailout for US-64.

TheNAV of a mere Rs 5.81 is a shocking record of mismanagement at the UTI. Doubtless, various private sector schemes have similar or lower NAVs but they are a direct consequence of specific portfolio objectives made known to investors. This defence cannot be trotted out for US-64, with a portfolio of some 800 stocks across all industries. And even this NAV has been propped up by the special Government of India securities issued under the 1999 bailout package aggregating Rs 3,300 crore. It is difficult to believe that the top brass in the UTI, SEBI and the Government were not aware of the NAV picture over the last few years. Yet, the UTI was allowed to continue with its populist dividend policy, an opaque sale and repurchase pricing structure, to hide material facts from investors and run patently misleading advertisement campaigns. Not having to disclose the NAV, the UTI brass got away with it over the past decade — a matter that must be investigated and the responsibility fixed for the mismanagement.

Anotheraspect that adds to the consternation of investors is the existence of two specific downside risks to the NAV. One, unlike most other mutual fund schemes where the NAV and the net realisable value are fairly close, in the case of US-64 this gap would be large given the size of the fund with a corpus of Rs 12,776 crore and net assets of Rs 7,423 crore. Two, as the fund moves to raise its exposure to debt instruments to 75 per cent of net assets — a dramatic increase from the hitherto low levels — the process of liquidation could lower equity values.

Whileinvestors in US-64 have much to feel vexed, the general public too is set to pay a stiff price with the bailout package likely to cost the exchequer some Rs 5,100 crore by May 2003 when there is certain to be a big pullout of funds from US-64 by investors of all hues. This payout for the Government could be lower if the market improves in the meantime. On the other hand, as the Government's commitment is open-ended, this can go up too should the NAV erode further. The Centre should examine the possibility of freezing its commitment at present levels. Even then it would have provided a lifeline of Rs 8,500 crore over three years to the scheme.

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