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Your US-64 Action Plan

The largest balanced fund continues to hog the limelight. With the profound changes in US-64, here is an insight into changed fund and a clear action plan for the small, large and prospective investors of US-64.

US-64 continues to hit headline everyday for understandable reasons. The oldest and the largest balanced fund of the country underwent a profound change. After being in existence for over 37 years it announced the way it will invest our monies and the way we can buy. Then came the revised special offer from the government, enhancing the number of units eligible for repurchase at guaranteed price to 5000 units and guaranteed price of Rs 10 for remaining units for all investors in May 2003. Then, the first NAV of the fund was revealed. This profound change has now created two class of investor – old investors (all investors of the fund as on June 30, 2001) and new investors who buy units from January 1, 2002. For all old investors, the NAV of the fund doesn't matter because of the special offer. But surely the new revelations has simplified the road ahead for all investors.

Small Old Investors: For your first 5000 units, you can exit the fund anytime you need money as you get a guaranteed price being revised every month. It is Rs. 10.50 for the month of January 2002. But don't exit the fund if you don't need, as the return by way of guaranteed price is as much if not better than the best fixed-income alternative available. And you should stay invested till May 2003.

Large Old investors: Four your holdings of over 5000 units, you must wait till May 2003. As you are assured of a minimum repurchase price of Rs 10 or NAV, whichever is higher in May 2003. And you should also track the NAV and redeem whenever it attains a level close to Rs 10 in the interim before May 3003.

New Investors: US-64 claims that it will become a debt tilted balanced fund in near future. It NAV is Rs 6.21 on January 4. And its portfolio on December 28, 2001 was worth Rs. 13,647 crore. Of this, Rs 8426 crore in equities and the rest in debt instruments including government securities. And its net assets based on NAV and the units outstanding as on December 28 was Rs. 7424 crore. This implies that US-64 has borrowing worth Rs 6223 crore. If the fund repays its borrowing today, then US-64 will be more than an all equity fund. And even the equity portfolio is spread over 500 securities, a tracking challenge for any fund manager. Moreover, the fund has turbulent times ahead as it will face redemption and massive portfolio overhaul. Hence, one will do well to get past US-64.

Arbitrage opportunity: As there are two prevailing prices for US-64. The guaranteed price and the NAV based price. So some investors might consider US-64 an arbitrage opportunity. Its is not. If you liquidate your existing holdings at Rs 10.50 a unit and buy new units at Rs 6.21, they are not equal. The new units you buy do not qualify for the special offer of guaranteed price. So you should exit US-64 by May 2003 only when you need money. And you buy the fund only if you find it an attractive now. Apparently, in its current form it isn't.

Fund Update: During the week, the market gained 191 points (6.03%) at BSE Sensex and 96 points at Nifty. (6.33%). The top gainers were IL&FS eCOM (13.01%) Alliance New Millenium (12.76%), ING Growth Portfolio (11.96%). The top losers were thefunds which gained the least- Boinanza Exclusive Growth (2.74%), Magnum Pharma (2.30%), JM Basic (1.78%)