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US-64 leans heavily on other schemes

S. Vaidya Nathan

BL Research Bureau

THE Unit Trust of India has relied heavily on schemes other than US-64 to generate income in the second half to cover the dividend payment for 2000-01.

The other significant aspect is the low level of interest income at Rs 191.39 crore. This suggests a substantial reduction in debt instruments.

Out of the total income of Rs 1,763.54 crore for the half year ended June 30, close to 93.57 per cent or Rs 1,650.17 crore have come from `profit/loss on inter-scheme transfers/sale of investments'.

This suggests that the other UTI schemes had had to bear the burden for the generating income for the flagship fund. Needless to add, this would have an adverse impact on the performance of other UTI schemes.

Significantly, in its secondary market operations, UTI has booked a loss of Rs 233.79 crore during the January-June 2001 period.

The dichotomy between losses in secondary market operations and big profits in inter-scheme transfers is stark and is bound to raise serious questions on the quantum of burden shifted to the other UTI schemes and the arms-length nature of these transacti ons. For the first half of 2000-01, the fund had a total income of Rs 1,364 crore and ended with positive reserves. The total income of for 2000-01 is Rs 3,128 crore and a net income of Rs 1,523 crore.

Quite clearly, provisioning has taken a toll and but for the `inter-scheme profits', the fund may have been hard pressed to pay the dividend.

Despite a helping hand from other UTI schemes, it has just about managed a 10 per cent dividend on a capital of Rs 12,778 crore. In contrast to the position on December 31, 2000, the reserves are also now in the negative terrain.

Quite clearly, the fund has suffered a significant erosion in reserves due to the redemption pressures in April-May 2001. With close to 321 crore units getting redeemed, the fund would have to take a charge of at least Rs 1,280 crore on its reserves.

This charge is the difference between the repurchase price (which was around Rs 14.2 per unit in April-May) and the face value of Rs 10 per unit. This has clearly forced the fund to rely on the other UTI schemes to generate some income in the second half to have some cover for the dividend.

An interesting aspect of the income statement is that the interest income booked for the half year under US-64 is just Rs 191.39 crore. This suggests that under US-64, UTI is just holding the Government of India securities issued under the bail-out packa ge of 1999. This amounted to Rs 3,300 crore.

The US-64 should have received an interest income of Rs 370.92 crore from the Rs 3,300 crore of the Government of India Securities for the full year.

For the half year, it has received just Rs 191.39 crore as interest indicating that the 1999 bail-out package debt portfolio may be all that is left with the fund as far as the debt component goes.