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Sunday, Sep 22, 2002

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UTI Regular Income Scheme: Unattractive

Aarati Krishnan

THE UTI Regular Income Scheme is an open-end fund designed to invest a minimum of 90 per cent of its assets in debt instruments, with the balance in equities. The fund is currently open for subscription. The offer opened on September 12 and closes on October 11. It offers both a growth and a dividend option.

Investors can avoid taking exposures in the fund for the present. For one, it is always better to wait for a new fund to accumulate a track record before considering it for investments. If one is looking to invest immediately, there are several open-end debt oriented mutual fund schemes (including UTI Bond Fund) that already have a good track record of performance over the past three-four years. This apart, the UTI Regular Income Scheme has quite a few features that are not exactly investor-friendly. One, though the scheme has "regular income" in its name, it specifies that dividends declared will be compulsorily reinvested, unless the investor invests more than Rs 30,000 under each folio.

There is also a similar restriction on those seeking to leave standing instructions with the fund to withdraw fixed sums from the fund on a monthly or quarterly basis (what is called a systematic withdrawal plan). The scheme stipulates that an investor has to invest at least Rs 50,000 to avail of the monthly systematic withdrawal plan and at least Rs 25,000 for a quarterly systematic withdrawal plan. Moreover, both the ceiling for initial issue expenses and subsequent load structure appear to be on the higher side, for a debt-oriented scheme. The scheme has pegged the initial issue expenses at the SEBI-stipulated maximum limit of 6 per cent.

In contrast, most debt schemes launched in the recent times have either on a no-load basis (where the Asset Management Company bears the launch expenses) or have restricted it to 2.5 per cent of the assets. The UTI- Regular Income Scheme also stipulates an exit load of up to 1 per cent if investments are redeemed within three months of investment and an entry load of up to 2 per cent for investments made after the initial offer closes. Both the initial issue expenses and the entry and exit loads may impact returns to investors.

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