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UTI Master Equity Plan 1992: Redeem

Aarati Krishnan

WITH the UTI's Master Equity Plan 1992 scheduled for redemption, the Unit Trust of India has offered unitholders the option of switching to any of the other funds managed by it. Unitholders may, instead, opt to redeem their holdings. They must make sure that they indicate this in the option letter mailed to them and return it to the UTI. Rather unusually, the UTI has stated that the registrars will not process the redemption of MEP 1992 units unless the option letter is received.

The UTI manages a range of both debt and equity funds to which it may permit switchover from MEP 1992. However, it lacks a consistent track record across its debt- or equity-oriented schemes. While a few funds, both in the debt and equity area, have done reasonably well, others have fared unimpressively in relation to peers.

Among equity funds, while a few, such as UTI Grandmaster, Primary Equity Fund and Equity Opportunity Fund, performed well over the last five years, Mastergain 1992 and Mastershare fared unimpressively.

Under normal circumstances, unitholders wishing to remain invested in equities could switch to the UTI's passively managed Nifty Index Fund, without running the risks associated with slip-ups in fund management. However, with the S&P CNX Nifty appreciating around 35 per cent in the past six months, this may not be the best time to invest in an index fund, as the scope for near-term gains may be limited.

It may be better to wait for a fall in market levels before considering investments in an index fund. Moreover, actively managed funds tend to substantially outperform the narrow market index in any sustained rally.

The MEP 1992 appears to have delivered unimpressive returns during its 10-year tenure. Its final NAV of Rs14.88 per unit translates into a compounded annual return of just 4 per cent per annum over its 10-year tenure. Over the same period, an investor who invested passively in the basket of Nifty stocks would have generated a return of 7 per cent per annum on his portfolio. Given that the markets have seen at least four boom-bust phases over this ten-year period, a well-managed active portfolio would have generated much higher returns.

Like other equity schemes managed by the UTI, MEP 92 too has undergone a restructuring of its portfolio over the past couple of years. By the end of February 1992, the portfolio featured a good mix of growth stocks and cyclicals. The fund is likely to have made substantial gains on PSU holdings such as Hindustan Zinc, HPCL and Neyveli Lignite Corporation.

However, probably as a legacy from the past, the portfolio also held a smattering of small- and mid-cap stocks, which have low liquidity levels. Geekay Exim and Viceroy Hotels represent some of these exposures. The portfolio also had a large number of stocks relative to its size.

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