With a view to attracting the nearly 2-3 million investors of US-64 and ARS bonds, UTI Mutual Fund has given them an option to invest in some of its best performing schemes.
The move follows the near Rs 60 crore (Rs 600 million) redemptions every month from the US-64 and ARS bonds in the last couple of years.
As per the letter sent to US-64/ARS bond holders, investors holding 3,000 bonds are eligible for conversion.
"The US-64/ARS bond holders get 6.75 per cent tax-free interest, which was very attractive when the scheme was conceptualised. But the interest rates have now gone up. Besides, the stock markets have also been giving much better returns. Hence the initiative on the part of UTI Mutual Fund," said an executive close to the development.
The US-64/ARS bonds were issued in June 2003 to holders of the erstwhile Unit Scheme 64, as a conversion option . Bond holders also benefited from the no lock-in period and the guarantee provided by the government.
US-64 bonds alone have a corpus of Rs 9,000 crore (Rs 90 billion), which is managed by UTI-I (or the Specified Undertaker of UTI).
UTI Mutual Fund (or UTI-II) is offering US-64 bond holders an option to invest in UTI Infrastructure Fund, UTI Leadership Equity Fund, UTI Mastershare, UTI Balanced Fund, or any other scheme of choice.
"As the attractiveness of the US-64 bonds fell due to rising interest rates and booming capital markets, we have been seeing a steady outflow. We thought of offering our products to these investors as an attractive alternative," said an executive.
UTI Infrastructure and UTI Leadership funds are among the best performing mutual funds schemes, riding on the rising equity markets last year.
The benchmark Sensex gave returns of nearly 47 per cent last year. The capital goods index rose over 60 per cent in the same period.
UTI Mutual Fund has also given an option to bond holders to submit multiple requests, if they have redeemed or converted bonds in the past.
These investors will be eligible for conversion of additional bonds aggregating a total of 3,000 bonds.
The letter to the US-64 bondholders said the first holder of the bond certificate and the first applicant of UTI MF scheme into which the redemption proceeds of bonds are converted will remain the same.
