The assets of Unit Trust of India's Unit Scheme-64 will be transferred to the Development Reserve Fund from May 31 when the scheme will be terminated.

US-64, the largest and oldest mutual fund scheme, has a corpus of around Rs 10,000 crore (Rs 100 billion) with strategic holdings in blue-chip companies including Reliance Industries and ITC.

The units, once considered to be a sovereign security with the highest safety, would be converted into 6.75 per cent tax-free tradable bonds for a large chunk of the investors.

The DRF, which is now under the administrator of the Specified Undertaking of the UTI, also controls the strategic holding in UTI Bank and Crisil, IL&FS, Stock Holding Corporation of India, the National Stock Exchange, the Maharashtra industrial promotion agency Sicom and UTI Investor Services.

The fund was created to meet shortfall in capital for assured return schemes. It was also used as an investment vehicle to promote different entities. The fund also holds real estate properties developed by the Trust.

UTI-I has been planning to offload its non-strategic stakes in some of the domestic companies as well as its stake in UTI Investor Services and UTI Institute of Capital Markets to generate cash.

The finance ministry is considering other options for maximising the value of UTI's investments in the National Stock Exchange and credit rating agencies Crisil and Care besides the OTCEI.

"There is a role for these establishments, especially the rating agencies, in the Asian region and it may not be right to divest outright," an official said.

Meanwhile, the cash outgo for US-64 redemption has been pegged at around Rs 2,000 crore (Rs 20 billion) against Rs 6,500 crore (Rs 65 billion) budgeted this year with all institutional and large investors opting for the 6.75 per cent tax-free bonds.

The government had offered five-year 6.75 per cent tax-free and tradable bonds to investors holding over 5,000 units to reduce the redemption pressure. The annualised returns on these bonds work out to over nine per cent, factoring in the tax component.

The new order

US-64, the largest and oldest mutual fund scheme, has a corpus of around Rs 10,000 crore (Rs 100 billion) with strategic holdings in blue-chip companies including Reliance Industries and ITC.

The units would be converted into 6.75 per cent tax-free tradable bonds for a large chunk of the investors.