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UTI Variable Investment Plan

UTI has crafted a new kind of fund, the Variable Investment Plan -- an asset allocation fund that will invest in BSE Sensex stocks and bonds in a predefined ratio based on the Sensex Level.

After many years of running funds like US-64 and MIPs which have run out of life and the non-performing Master series of equity funds, UTI has crafted a new kind of fund, the Variable Investment Plan -- an asset allocation fund that will invest in BSE Sensex stocks and bonds. Asset allocation is the process of reducing risk via maintaining a portfolio spread over variety of asset class and consistently monitoring it. The asset allocation of the Variable Investment Plan will depend on the state of Sensex.

At lower levels of Sensex the fund will have a higher equity allocation to the extent of 80 per cent and rest in debt securities and higher levels will have a minimum equity allocation of 51 per cent. And the fund will continually realign its allocation based on the Sensex movement.



Stated Asset Allocation
  Sensex Level  Equity (%)  Bond (%)
  Upto 3200 80 20
  3201 to 3400 75 25
  3401 to 3600 70 30
  3601 to 3800 65 35
  3801 to 4000 60 40
  4001 to 4200 55 45
  Above 4200 51 49
 
value

   

e.g. if the Sensex moves from below 3381 points today (Jan. 15, 2002) to cross 3400 points, then the fund will slash its equity allocation from 75 per cent to 70 per cent and have a larger fixed income exposure of 30 per cent up from 25 per cent. The allocation change will be triggered with every 200-points change in Sensex.

The fund has an edge over other equity funds, as it will not be fully invested in equities under all circumstances. And in a range bound market in which our market has remained for years now with big moves for a brief period, this fund will make money by cashing on the big moves. However, the fund will not fully benefit from a sustained bull market, if it stretches for years.

Besides periodic realignment of portfolio in a fund is tax advantageous for an investor. If an investor tries to realign his allocation then it will amount to booking profit or losses every month with tax implications.