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US-64 investors feel cheated

Ashok Jainani

MUMBAI, July 16

INVESTORS, long and short term, in Unit Trust of India's (UTI) largest scheme Unit Scheme-1964 (US-64) feel cheated by UTI's decision to repurchase the units at a price of Rs 10 per unit. The worst sufferers are those who invested in the scheme during th e last few months before UTI closed the scheme for book closure in June and thereafter announced a shut period of six months.

While UTI could provide some relief to small investors by opening partial repurchase facility, investors who could not exit earlier stand to lose. And corporate investors who redeemed during April-May aggregating over Rs 2,500 crore, had the last laugh a t the cost of small investors as they were able to exit at Rs 14.25 per unit, a price higher than the net asset value (NAV), analysts said.

The UTI Chairman, Mr M. Damodaran, feels that the decision of partial repurchase at Rs 10 per unit will be viewed positively by the investors. ``We are confident that the small investor will stay in the scheme unless he has pressing requirements and no o ther alternative,'' Mr Damodaran told Business Line.

Those who invested last July at a price of Rs 13.50 per unit got a dividend of Re 1 and have now been assured a repurchase price of Rs 10 per unit. Even those who invested at a price of Rs 13.50 in July 1999 stand to lose the same way. Forget about the c apital appreciation, as UTI advertisements promise and promote, this effectively results into a capital loss of Rs 2.50 per unit.

For those who invested in May 2001 at a price of Rs 14.55 per unit, it yields a net capital loss of Rs 3.55 per unit or 31 per cent on the amount invested, considering dividend of Re 1 in July 2001.

UTI, after two weeks of deliberations, on Sunday announced repurchase of up to 3,000 units per investor at a price of Rs 10 per unit from August onwards and a freeze on fresh sales under the scheme up to December 2001.

The decision is likely to affect UTI's brand equity built over 37 years and might impact fresh inflows under other schemes. ``This might also affect UTI's clout in the secondary markets,'' independent market observers said. Some said that there was no ot her choice for UTI as it was driven to the wall with decline in stock prices over the last four months.

There are others like the Management Consultant, Mr R. Sankaran, who said the UTI was not the only one to be blamed. ``What is the performance of other mutual funds,'' he said.

There are some investors who seem to be indifferent to the controversy. ``It is enough as long as they get the principal back,'' an analyst said.