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UTI reduces equities in US-64 to 55%

Top Indian fund manager Unit Trust of India, stung by stock market volatility, said on Thursday it would cap the equity portion of its flagship fund's portfolio at 55 per cent from the level of about 61 per cent now.

The Mumbai-based mutual fund manager said in a statement that the cap on the debt proportion of Unit Scheme 64 (US-64) would be raised to 75 per cent of total assets.

"This scheme aims at providing cumulation of income and capital appreciation over a long term," the fund manager, which has about 40 million investors, said in a statement.

Unit Trust of India, which manages around half the Indian mutual fund industry's assets, invests only in Indian instruments.

It has been pushed to restructure its most popular scheme after a major crisis in July, partly caused by the scheme's high equity component, whose value fell after a stock market slide.

UTI says equity now accounts for 61 per cent of the scheme's estimated $2.3 billion of assets with debt investments, including government securities and money market instruments, the rest.

UTI plans to rebalance the scheme's portfolio in line with the new weightings by June 30, 2003.

UTI would not give targets for the new weightings but a vice-president of equity sales at a Mumbai-based brokerage, who declined to be named, said US-64's equity exposure will settle at around 40 per cent. He forecast that UTI would transfer shares across schemes rather than sell in the secondary market.

"Finally US-64 is becoming what it should have been -- a debt-tilted balanced fund," said Dhirendra Kumar, managing director at New Delhi-based fund tracking firm Value Research.

"Investors had always perceived it that way. The aligning of the portfolio with a 75 per cent weightage means that a large chunk of assets will now deliver a predictable revenue stream."

LIMIT VOLATILITY

Analysts said the move to cut US-64's exposure to equity markets would limit the impact of volatile movements in stock markets and protect the scheme's net asset value, or market value per unit, from wild swings.

But it was unlikely that US-64's equity exposure would fall to 25 per cent of total assets, which would happen if debt investments rose to the maximum 75 per cent of total assets.

In July, UTI froze repurchase of US-64 units following heavy redemptions in the April-June quarter, which were sparked by investors' fears the fund would cut the scheme's dividend and slash the repurchase price after a stock market slide that began in March.

But a national uproar forced UTI to backtrack and allow partial redemptions in US-64 of up to 3,000 units at a pre-determined price.

Nearly half of the scheme's 20 million investors own less 3,000 than units.

UTI does not declare the scheme's net asset value on a daily basis, fixing the monthly sale and repurchase prices arbitrarily.

But as a part of its restructuring drive, US-64 will start reporting its net asset value from January 1.

From then on, US-64 will repurchase more than 3,000 units at the net asset value, while units below level this will be bought at a fixed price notified monthly.

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