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Brokers hope for relief soon from UTI ban

India may ease the temporary ban on redemptions in Unit Trust of India's giant Unit Scheme-64 fund to quell public ire, brokers said on Thursday.

They said the government may allow the smaller investors among US-64's 20 million unit-holders to redeem their units to avoid a political backlash from the ban which has already taken the wind out of the country's stock markets.

Most corporate investors in the troubled scheme had liquidated their holdings in anticipation and the move to suspend redemptions and sale of its US-64 units until the end of the year has hurt small investors the most, the brokers said.

"They could do this to bring relief to smaller investors," said Motilal Oswal, Bombay-based stockbroker adding that the freeze could be lifted for those who hold less than a certain number of units.

Since the suspension of redemptions and sale of US-64 units was announced on Monday, the government has been under intense pressure to roll back the ban. Union Finance Minister Yashwant Sinha has said the ministry was scrutinising the UTI decision.

"There has already been a lot of hue and cry over this issue and we could see some kind of measures announced soon," said a broker who declined to be identified.

But senior UTI officials said it was unlikely such a change will be made.

"It is not one of the options that we are looking at," said B G Daga, executive director of Unit Trust of India.

UTI, India's largest mutual fund manager, rattled the investor community on Monday when it announced a ban on the redemption and sale of units under its US-64 mutual fund, the largest in its fold.

UTI, controls assets of nearly Rs 600 billion, a quarter of which is under US-64.

US-64 is seen as a symbol of public trust as millions of individual investors look upon it as a safe haven for their savings and for steady returns.

Monday's announcement effectively converted US-64, into a close-ended fund from an open-ended one. The US-64 is listed on the National Stock Exchange.

Domestic companies have invested in US-64 primarily because of its liquid status -- it was the closest thing to holding cash.

But they acted before the ban took place, encashing their holdings which resulted in massive redemption pressure on US-64 in April and May this year, brokers said.

Unit redemptions in these two months accounted for Rs 41.51 billion, compared with Rs 59.62 billion in the year to June.

Unit Scheme 1964's net asset value is not made public and its sale and repurchase price was, until now, declared monthly by UTI. These prices were not directly linked to the market value of its portfolio.

The stock markets were supposed to offer an alternate exit option to unit holders, but have failed in the absence of a price discovery mechanism, with the National Stock Exchange showing no trades in US-64 units since March 1999.

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