I have excellent news for US64 unit holders. At its redemption in May this year, unit holders are likely to get an unforeseen reward. Before discussing the reward let us examine how the scheme will be closed.
The government has decided to terminate US64 in its present form, with effect from June 1, 2003 with guaranteed returns to unit holders.
The returns on US64 units fall in the following three categories :
- Category 'A' units repurchasable at Rs 12.
- Category 'B' units repurchasable at Rs 10.
- Category 'C' units repurchasable at NAV. (Units acquired through secondary market from November 15, 2002 to January 23, 2003).
Starting from August 2001, the government had offered structured repurchase prices, starting from Rs 10 and increasing by 10p every month (except July 2002), ending with May 2003 with Rs 12 as the repurchase price. The maximum units repurchasable were 3,000, raised to 5,000 units on January 5, 2002.
Consequently, in May 2003, all unit holders who own more than 5,000 units will be paid a repurchase price of Rs 12 per unit up to 5,000 units (less units repurchased from August 2001 onwards) and Rs 10 per unit on the excess thereof.
Unit holders whose value of repurchase proceeds is less than Rs 5,000, will receive repurchase cheques dated May 1, 2003 automatically. Thus, this category of unit holders will not be offered any option.
In respect of category 'C', the unit holders can exit at NAV (without load) from April 1, 2002 for two months. The residual unit holders as on June 1, 2002 may be moved over to US02 at the NAV of May 31, 2003. These are the units hived off from US64 on November 15, 2003.
Now, the good news
Other unit holders under category 'A' and 'B' who have not encashed their units till May 31, 2003 will be given an option of converting their units into GOI tax-free bonds.
These bonds have a tenure of five years and a coupon rate of 6.75 per cent annually, payable half-yearly. The annualised yield works out at 6.86 per cent. This translates into an annualised yield.
Interest and the principal at maturity carry the government's sovereign guarantee.
To ensure high liquidity, the bonds are made transferable from one entity to another and therefore, these are tradeable in the market. UTI has entered into back-to-back arrangements with some banks (particularly with UTI Bank), financial institutions and the Life Insurance Corporation (LIC) to provide liquidity.
Thus if a bond holder needs cash, he will have no difficulty whatsoever in selling or hypothecating the bonds to get a loan.
If the unit holder wishes to opt for conversion to bonds, he doesn't have to do anything. The default option is the bond. If the option form is not received by UTI, it will be presumed that the unit holder has consented to take the bond.
He will receive the bond certificate at his address by May 1, 2003. Unit holders who have opted for bonds, but wish to repurchase after receiving the certificate will be allowed to repurchase upto May 31, 2003 on submission of the duly discharged bond certificate.
Alternatively, he can fill up the prescribed option form opting either to convert his holding into the tax-free GOI Bonds or to repurchase the units at the rates applicable in May 2003 (Rs 10 or Rs 12 as the case may be) and submit it to the nearest UTI branch or the registrar by April 4, 2003.
Unit holders opting for repurchase will be paid the repurchase value without calling back from them the unit certificates or membership advice or statement of account or accumulated income unit statement.
The repurchase cheques dated May 31, 2003 will be sent by the first week of May 2003.
The bond of face value of Rs 100 will be issued based on the value of units as on May 31, 2003 in the multiple of one. The residual amount, if any, below Rs 100 will be repaid along with the first interest on the bonds due on December 1, 2003.
Yet another user-friendly measure. UTI has undertaken to merge different investor IDs, for the same first-named holder into one ID for saving on cost of processing and delivery.
However, this will be done away with while converting units into bonds. This may result in some unit holders getting more units repurchased at Rs 12 than they are entitled for.
For the purpose of the issue of bonds, a book closure between April 5, 2003 and April 17, 2003 (both days inclusive) will be observed. Issue date of the bonds will be June 1, 2003 and the bonds will mature on June 1, 2008.
The real benefit
It is obvious that there will be a great appetite for the bonds from high networth individuals, banks, financial institutions and trusts. In the wake of a falling interest regime, the bonds are likely to be quoted in the market at higher than the par value of Rs 10.
This will be an additional bonanza for those for whom the 6.75 per cent tax-free interest is not attractive or those who need cash. Others will do well to own the US64-linked GOI Bonds.
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