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UTI chief says no redemption surge

Investors are not flocking to redeem units on the first day of the reopening of the purchase window by the Unit Trust of India's flagship fund, its chief told Reuters on Wednesday.

"The information that we have got until now is that there is hardly any presence at the UTI counters," said UTI chairman Meleveetil Damodaran.

"Ordinarily one would have expected that if there was pressure of the kind that was talked about, there would have been queues at 10 in the morning when the office opened," Damodaran said.

"That has not happened."

UTI, which manages Rs 575 billion in assets, stunned investors and rattled financial markets when it announced on July 2 it was freezing redemptions from its flagship US-64 fund for the remainder of 2001 due to a surge in redemptions in the April-July quarter.

After a huge public outcry, UTI partially reversed the decision on July 15, saying it would allow investors to redeem up to 3,000 units each from August 1 to May 31, 2003 to ease the impact of the freeze on small investors.

Domestic media has been speculating that the UTI could face redemptions of Rs 50 billion to Rs 60 billion over the next two to three months.

Damodaran, who took charge as India's largest mutual fund manager after its former chief resigned following intense public criticism of the redemption freeze, said he expected a marginal rise in redemptions in August, but that should not be cause for concern.

"Should any marginal increase take place, I would attribute it largely to the fact that we have been closed for one month longer than we are closed every year," he said.

UTI closes the fund to both new subscriptions and redemptions every June in order to draw up the accounts and prepare a list of unit holders due the annual dividend declared at the start of July.

Fear of a surge in redemptions had been a major concern after UTI paid out Rs 41.51 billion in April and May before the month-long book closure.

That was 70 per cent of the total Rs 59.62 billion paid out in redemptions in the past year to June.

The surge in redemptions was triggered by expectations of a cut in dividend due to the sharp decline in Indian share prices, followed by potentially a big decline in the repurchase price once it is linked to the fund's net asset value.

UTI had been expected to link the redemption price to the NAV by next February. It now does not plan to do so until June 2003.

UTI does not disclose the NAV, which analysts believe has slipped below Rs 10 a unit, the redemption price now offered to unit holders. That is down 30 per cent from Rs 14.25 offered in May before the redemption window closed.

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