The Hindu Business Line : Mastershare 86: Hold/Avoid fresh exposures

THE redemption date for Mastershare, UTI's largest close-ended scheme, is barely a year and a half away. With the market price of the units hovering at Rs 9.65 in the secondary market, the market price carries a discount of nearly 22 per cent to the scheme's prevailing net asset value (NAV) of Rs12.24 per unit.

Theoretically, therefore, this would appear to be a good time to pick up exposures in the fund through the secondary market, as investors entering now can cash in on their units at the prevailing NAV during redemption, which is scheduled for October 2003. However, in Mastershare, this strategy seems to carry a high degree of risk, due to the following reasons:

The opportunity cost of investing in the fund could be rather high. The returns generated by the scheme since inception work out to around 11 per cent, after factoring in the dividends and bonuses declared. Given that the scheme has completed close to 15 years since its launch, these returns are uninspiring and fail to compensate for the risks associated with investing in equities.

The scheme underwent a portfolio restructuring exercise a couple of years back, but continued to be outpaced by several of its peers over the past five years. The scheme figures in the bottom quartile in terms of investments returns between 1997 and 2001. Those investing in Mastershare now could be passing up the opportunity of higher returns that could accrue by investing in diversified equity funds with a superior track record.

The scheme carries the additional disadvantage of being close-ended, which means that investors entering now are likely to be denied an exit option at NAV for the next year and a half. Close-ended funds usually see their discounts narrow during a sustained rally in equities. However, in Mastershare, the discount of 22 per cent to the NAV has been almost unchanged over the past year, despite the sharp recovery in equities.

The current discount on the scheme (22 per cent) is almost at the same level as that prevailing in September 2001. The S&P CNX Nifty rose 33 per cent over this period, but the market price of Mastershare units has risen in tandem with the NAV.

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