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UTI geared to meet redemptions: Damodaran

Priya Ganapati in Bombay

The Unit Trust of India said on Tuesday that it is prepared to meet redemptions when the purchase window for units in its largest fund reopens on Wednesday.

"We have tied up funds to face the worst case scenario, but we are sure such an occasion will not arise," UTI chairman M Damodaran told reporters.

The fund has set in place provisions to open additional counters, a helpdesk and special counters for senior citizens and women.

"We are prepared for any eventuality though we believe that there will not be many redemptions. Redemption will make sense only for those investors who need Rs 30,000 immediately and have no other option to explore," M Damodaran, UTI chairman said.

UTI has opened a line of credit with the State Bank of India for the necessary to meet the redemptions. SBI will liaison with other banks for credit and will be the single window for UTI.

There is expected to be moderate redemption pressure on UTI once the window is opened on Wednesday. A few weeks ago, UTI came out with an exit package for US-64 unit holders holding up to 3,000 units. US-64 is a 37-year-old savings scheme from UTI, launched to mobilise investors' savings and invest these funds in the capital market.

Over the years, the scheme mobilised more than Rs 580 billion of investment.

Damodaran declined to reveal the amount of funds that UTI has tied up with banks in wake of the redemption.

"We are prepared for the worst case scenario. We have ready with twice the amount of funds that we would need under the eventuality that all small investors redeem," he said.

According to UTI, US-64 has nearly 90 per cent investors who have up to 3,000 units. Damodaran is confident most will not be redeemed.

"It is in the interest of the investor to stay with UTI. We have already capped the downside. There is no other scheme in the market that will give an investor the kind of safety along with the high returns month after month like we do. Also there is the tax free benefit that is available. So it is in the investors' interest to not turn up at our counters tomorrow," he said.

Terming the US-64 problem as a liquidity issue rather than a solvency one, Damodaran said that UTI would not resort to sale of the strategic stake that it holds in many companies.

"We are confident that the difference in the NAV of US-64 and the redemption price would be made up from the market itself. There is no reason to believe that the market will remain depressed. The results being declared by the major corporates is better than expected. The monsoon this year has been good. All these things reflect a positive trend and we are sure that the market will look up," Damodaran said.

He asserted that UTI will not sell heavily in the market to make up for the shortfall in the funds. The funds for the redemption have been borrowed from banks at sub prime lending rate for six months with the scrips that UTI owns as collateral.

Starting August 1, UTI's fund managers and employees involved in investing decisions will report to work at 8.30 am instead of 9.30 am earlier.

Explaining the rationale Damodaran said, "Earlier, by the time investing decisions were made we lost about two hours of time on the market. The new schedule will ensure that we are ready with our decision by the time the market becomes active."

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