Search the Internet          Tips  Sites: Finance, Investment

Many MFs have lower NAV than US-64: Damodaran

BS City Editor

The 37-year-old UTI scheme, US-64, shifts from assured to market-driven returns tomorrow. On the eve of this historic transition, UTI chairman M Damodaran puts up a brave face and says there are a number of funds which have a lower net asset value than US-64's. Extracts from the interview:

Won't the startling disclosure of US-64's NAV at Rs 5.81 trigger large-scale redemptions?

Certainly not. We are offering investors an assured return of Rs 12 in May 2003 even though the NAV is low. The return on their investment in every month is higher than in the preceding month.

The government is behind us as it has announced sovereign assurance to protect the investors. I expect rational investors to take into consideration all these (factors) before taking any decision.

What's the logic behind offering an assured return of Rs 10 in June 2003 to investors holding more than 5000 units?

An assured return scheme is changing to an NAV-based one. However, we need to provide a certain degree of comfort to the investors who have been with this scheme for so long. We also get 17 months to steadily increase the valuation of the portfolio.

The indicative pricing (Rs 10) will act as a floor, but we will strive to push the NAV higher than that.

Which is your most grave concern?

We have no concern. The task on hand is to prop up the valuation (of the US-64 portfolio).

There are a whole lot of funds which have been offering a lower NAV than that of US-64.

Why has the NAV of US-64 dipped to such a low level?

The main reason is the huge borrowing in April-May 2001 to meet the heavy redemption pressure of that period. We borrowed about Rs 69 billion, out of which Rs 25 billion was borrowed from banks and the rest came from the common liquidity pool within the Trust.

The second reason is stricter provisioning for the debt exposure. And finally, the new tax regime also made an impact. For instance, dividend outgo is now taxed. A combination of all these factors pulled down the NAV.

What is the current borrowing level of US-64?

The US-64 borrowings ("negative liquidity"), which were to the tune of Rs 69 billion in April-May, have been reduced to Rs 40 billion. Over a period of seven months, we have reduced it by 42 per cent! And mind you, the entire corpus is not bank borrowing.

What is the NPA level of US-64?

It's not much. In fact, it is much less than that of the other schemes of UTI. A bulk of its investments is in equities and government securities.

What is your plan for the 25 per cent junk stocks in US-64 portfolio?

US-64 does not have junk stocks in its portfolio. We will announce 99 per cent of the portfolio tomorrow. There could be some scrips whose market value is very low, but in percentage terms, they are negligible and certainly not 25 per cent of the portfolio.

Powered by

YOU MAY ALSO WANT TO READ:
The UTI Crisis

The Rediff-Business Standard Special
The Budget 2001-2002 Special
Money
Business News

Tell us what you think of this report