Finally, after 37 years US-64 has a clearly stated asset allocation. US-64 will own both stocks and bonds, maintaining a balance between the two asset classes. Usually it will place about 75% of its assets in bonds and 25% in stocks. Now, US-64 could be a lower-risk investment and a simple way to get some equity exposure. Simply put, it may be suited if you want to invest without assuming too much risk and also want to make money. Now, US-64 will be a steadier vehicle to own equities for long-term. But your regular income expectations may not materialise from US-64. Also, US-64 cannot provide very high return given its conservative stance in equities.
Bonds play a defensive role. And US-64 will devote 75% of its portfolio to bonds, means a large part of your investment will be reasonably protected. And typically balanced funds periodically rebalance between stocks and bonds, the percentage protected should stay pretty steady. The remaining 25% allocation to stocks will provide growth. Notwithstanding the recent disappointment, stocks prove rewarding over the long-term as the growth of nations seems a long-term certainty. But you will still be exposed to the market risk—the risk of fluctuating markets. Over the short term, it is a serious risk.
US-64 will be open for continuous sale and redemption again from January 1, 2002 based on its daily NAV. The sale price will not exceed NAV plus 3 per cent of NAV. And the minimum redemption price will be 97% of NAV for redemption within 1 year from the date of investment, at 98 percent for redemption within 1year to 2-years, at 99% of the NAV for redemption between 2-years to 3-years and at NAV after 3 years.
The Special Offer: The pricing of the fund has become a fairly complicated for all its existing investors. UTI will provide guaranteed repurchase price for the first 5000 units of all unit-holding account. The guaranteed repurchase price is Rs. 10.50 for the month of January 2002 and will go up by 10 paisa every month till May 2003, barring the month of June 2002. Hence, the repurchase price will be Rs. 11 in July 2002 and Rs. 12 in May 2003. For the remaining units, redemption will be at NAV based price between January 1, 2001 and May 31, 2003. However, investors have been offered higher of the minimum repurchase price of Rs 10 or NAV on May 31, 2003.
The Action Plan: First and foremost, your decision to stay put or exit US-64 should be based on its suitability for your financial goals and return expectations. US-64 is not suitable for investors who seek regular income or high growth from their investments. And if you decide to exit the fund for its unsuitability, you should still evaluate the special offer provisions before redeeming your units, as getting out now may not be opportune.
The decision to exit is simple for investors owning upto 5000 units. Such investors seeking regular income from his investments can stay put till May 2003. For them, US-64 is almost like a fixed income investment without any downside, given the guaranteed repurchase price. But you must redeem your units in May 2003 and invest you redemption proceeds in a fixed income fund. And if you own 5000 or less units and want growth, you should exit now and invest the redemption proceeds in a diversified equity fund.
If you own over 5000 units and seek regular income or high growth from your investments, the fund may not be suited. But your decision to sell will depend on the state of NAV. If the NAV is lower than Rs. 8, then you should stay invested till May 2003 as UTI assures a minimum repurchase price of Rs 10 to all the units you own. But you should also track the NAV and redeem if it attains a level close to Rs 10 in the interim before May 3003.
US-64 will be suited only for long-term investors who want to invest without too much risk and also want to make money. And even as a long-term investor, you must periodically review its heath and relative performance to continue with the fund.
Fund Update: During the week, the market fell 51 points on the Sensex. And most equity funds fell with the market while the leading technology funds gained during the week. The top gainers were – Birla IT (3.88%), Prudential ICICI Technology (2.88%) and Alliance New Millenium (2.35%). The top losers were – UTI Petro (-4.43%), Pioneer ITI Bluechip (-3.07%) and Tata Select Sector (-3.06%).