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Unit Scheme '64: NAV Estimates

Considered as a herculean's task, the article unruffles the simple mathematics behind NAV calculation of US'64.

Part 1: July 2000

The Net Asset Value
With a strong surge in equities for most part of 1999-00, UTI hiked the dividend in June 2000 from 13.5% to 13.75%. The net asset value (NAV) is assumed to be the average of the sale and repurchase price of July 2000.

Sale Price Rs. 13.50
Repurchase Price Rs. 13.30
Average Rs. 13.40

The NAV can be arrived at using a different methodology with the same result.
As on June 30, 2000

Market Value of Investments Rs. 20,593.63 crore
Unit Capital Rs. 15146.26 crore
Units Outstanding 1514.626 crore units
Net Asset Value per Unit Rs. 13.40

The Asset Break-up
The debt, equity mix for US-64 on June 30, 2000 was 28:72. Based on this, of the unit worth Rs. 13.40 as on June 30, 2000, Rs. 3.72 of debt was in debt and Rs 9.68 in equities.

Part 2: May 2001

Equity Exposure took its Toll
Based on the assumption that the unit capital of the fund is constant, current NAV for US-64 is estimated at Rs. 11.24 (June 30, 2001). This is based on the following assumptions:

June '00
June '01
% Chg
Equity
Rs.  9.68
      Rs.  7.07
-  27%
  (The fall in Sensex)
Debt
Rs.  3.72
      Rs.  4.17
+ 12%   (The average 1-year return on debt)
NAV
Rs.13.40
      Rs.11.24
 - 14%

….and investors run from US-64 added to its woes
The unit capital of US-64 has come down from Rs. 15146 crore to Rs. 12778 crore, implying net redemption of 237 crore units. The net outflow according to UTI was Rs. 3301 crore, implying an average redemption price of Rs. 13.94 per unit. As the fund was buying back units above it NAV, further eroding Rs 640 crore, a drag of 50 paisa on the NAV makes it Rs. 10.74. And the one rupee dividend announced will take it further down to Rs. 9.75.

The above computation is based on the actual unit capital, redemption and sale value disclosed and dividend declared by UTI. However, the average redemption price and depreciation in equity value of the portfolio and gain on debt portfolio is assumed.

This NAV at less then Rs. 10 has the potential to erode public confidence of 2 crore account, which according to Deepak Parikh Committee, is a virtual proxy of the public confidence in Indian financial system.