The Hindu Business Line : US-64 wipes out shortfall in NAV

THE steep rise of stock valuations in the equity market has helped Unit Scheme — 1964, flagship of the erstwhile Unit Trust of India, to wipe out the entire shortfall in its net asset value. On October 15, the net asset value of the scheme stood at Rs 100.20 (Rs 10.02 if expressed in Rs 10 units), a little over the face value of the special US-64 bonds.

The total assets under management (AUM) of US-64 now stands at a little over Rs 8,500 crore or equivalent to the aggregate face value (at Rs 100 per bond) of the outstanding US-64 bonds issued at redemption of the scheme. This means the burden of the Government, the sole owner of the entire portfolio now, has come down to zero, officials at the Specified Undertaking of Unit Trust of India said.

According to the UTI officials, the scheme has outperformed the BSE Sensex over the past four months that it has been a "Government portfolio". Since June 2, the NAV of the scheme has gone up more than 66 per cent compared to a 51 per cent rise in the Sensex. The top 20 stocks in the portfolio accounted for most of the appreciation. The top rung includes blue chips such as Reliance Industries, ITC, State Bank of India, ICICI Bank, Hindustan Lever, Infosys, BPCL, L&T, Tata Steel and Nalco.

Currently, equities comprise 60 per cent of the scheme. Forty per cent of the portfolio is invested in debt of which 34 per cent is in Government bonds.

The US-64 scheme, the first mutual fund scheme in the country, was closed on May 31 this year, when UTI paid off investors in cash and bonds. Three-fourths of the investors opted for special tax-free Government bonds carrying 6.75 per cent interest per annum. The others were paid cash. At the peak of its popularity, the scheme had close to 60 lakh investors.

The plan to issue bonds instead of liquidating the entire portfolio was said to be the brainchild of the UTI Chairman, Mr M. Damodaran, who was brought in by the Government to pull together the institution wracked by scandal and a loss of public confidence. Asked to comment on the turnaround on Wednesday and whether he felt vindicated, Mr Damodaran said, "It was not the effort of one individual. It was the effort of the entire team at UTI."

Cash redemption was met partly through sale of assets and loans from banks given against Government guarantees and securities. While the total outgo was nearly Rs 1,600 crore, the Government support amounted to about Rs 640 crore. At the deepest of its crisis, UTI had borrowed about Rs 5,500 crore from banks to meet redemptions.

The fund has also brought down that sum to about Rs 2,500 crore now.

At the time of the redemption, the scheme's AUM was only about Rs 6,000 crore.

The strong rally in equities has pushed the value of the assets to more than Rs 8,500 crore now. The fund has been selling about Rs 100 crore of assets every month, mainly to meet loan repayments, the officials added.

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