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No redemption pressure on US-64 now: UTI chief

BS Markets Bureau

The Unit Trust of India is unlikely to face any major redemption pressure in the immediate future for its flagship scheme US-64, said chairman M Damodaran.

In his first interview to the media, Damodaran-who took over as chairman on Sunday-said: "The package drawn up by UTI has been well received by the small investors. The monthly 10 paisa step-up structure gives them assured returns for two years. This type of return could not be thought off usually at this juncture."

Damodaran said that the investors would prefer to stay put with US-64 as they would continue to gain due to incremental rise of 10 paisa every month. "Only those who are in the need of immediate cash and have no other avenues are likely to withdraw (from the scheme)," he pointed out.

Damodaran had a series of meetings with UTI senior executives today to put in place the right strategy to revive the beleaguered mutual fund behemoth. He also met with Reserve Bank of India governor Bimal Jalan.

The biggest challenge before Damodaran is to keep the organisation vibrant. "What ever systematic changes are needed would be taken up without losing time to keep the organisation vibrant. This is the biggest challenge before me," he said.

Any restructuring of UTI, according to him, will be a two-stage execution. "We first need to understand on what is going on and then decide what changes are needed which would be implemented immediately," he said.

Internally, the UTI management is not contemplating a split in the scheme between debt and equity holdings. "The objective is to make it a balanced fund. We will certainly raise the debt holdings but that will not trigger large-scale sales of equity," said executive director B G Daga.

To meet the redemption pressure, UTI has drawn up a three-pronged strategy. "There will be lines of credit from banks. We will also generate liquidity through repurchase deals. Finally, there will be bulk sales of holdings," Daga said.

On Sunday, UTI had announced that investors holding up to 3,000 units of US-64 scheme will be allowed to redeem their holdings at the face value Rs 10 beginning August 2001.

The administered price will be stepped up by 10 paise every month. The scheme will be linked to its net asset value in January 2002.

"Those unit holders who prefer to withdraw immediately will suffer a capital loss. Moreover, there are very few avenues to reinvest the money which would give similar returns," Daga said adding, "two years is a sufficient period for the fund to revamp the scheme."

Trading volumes zoom on NSE

Unit Trust of India's flagship scheme US-64 traded four per cent below the initial exit offer price of Rs 10 on the National Stock Exchange today. The unit opened at Rs 9.80, 20 paise below its option price. The price fell to a low of Rs 9.50 before closing at Rs 9.60.

The US-64 scheme witnessed selling pressure today. The trading volume zoomed to 1,02,000 units with 106 trades, from a marginal volume of 9,700 units on Friday. The volume on the NSE so far aggregated at 390,000 units, amounting to Rs 3.866 million.

All the US-64 units bought and sold at the secondary market will not be eligible for repurchase at the administered price. UTI had announced on Sunday that it would repurchase up to 3,000 units per investor till May 2003.

The repurchase price, pegged at Rs 10 for August, will be stepped up by 10 paise every month. The scheme will shift to NAV-based pricing in January 2002 and the investors will get the higher of the two prices -- NAV-based and administered pricing -- till May 2003 for selling the units.

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