VR Logo

US-64- Still Worth the Bet ?

The jury is out. US-64 will not pay dividend this year. Indeed a hard reality for those invested in the scheme for all these years. But that's not the end. Read more to know whether it is worth a bet or not.

Just when you had buried the ghost of US-64, it raises its ugly head again. UTI has just announced that it isn't going to pay any dividend this year. For investors nothing could be worse. After all, for consecutive 37 years, this scheme never failed to pay dividend. However, before you decide to do something in haste, I suggest you take certain things into account regarding the US-64 scheme.

In recent times, this scheme has acquired a new complexion. Effective January 1, 2002, US-64 has a clearly stated asset allocation. It has decided that it will maintain a balance between the two asset classes, parking about 75% in bonds and 25% in stocks. This way, apart from getting some equity exposure, US-64 should be now be less risky. Simply put, US-64 will suit those investors who aspire to make some money but at the same time are also risk-conscious. Starting January 1, 2002, US-64, based on its daily NAV, is open for continuous sale and redemption again. Let us take a look at UTI's special offer for US-64 scheme.

Special Offer: The pricing of the fund has become fairly complicated for all existing investors. UTI will provide guaranteed repurchase price for the first 5,000 units of all unit-holding account. The guaranteed repurchase price is Rs 10.90 for the month of June 2002 and will go up 10 paisa every month till May 2003. Hence, the repurchase price will be Rs 11 by July 2002 and Rs 12 in May 2003. For over 5,000 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.

So, before you take any decision on whether to hold on to US-64 units or exit it, let's draw out a plan of action for you.

Action Plan: First and foremost, your decision to stay put or exit US-64 should be based on the fact whether your financial targets and return expectations are met through this scheme. This scheme will be unappetising for those investors who are seeking regular income or high growth from their investments. Importantly, even if you decide to exit the fund, you should evaluate the special offer provisions before redeeming your units, as getting out now may not be opportune.

For investors who own upto 5,000 units, the decision to exit shouldn't be difficult. My advice to those investors who are seeking regular income from their investments is that you stay with the scheme till May 2003. For you, US-64 is almost like a fixed income investment with no downside, given the guaranteed repurchase price. However, you must redeem your units in May 2003 and invest the redemption proceeds to a fixed income fund. As for those who are seeking growth, please exit now and use the redemption proceeds to invest in a diversified equity fund.

If you own over 5,000 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 the NAV. If the NAV is lower than Rs 10, then I suggest you stay invested till May 2003 as UTI assures a minimum repurchase price of Rs 10 for all the units you own. So, closely monitor the NAV and redeem whenever it attains a level close to Rs 10 in the interim before May 2003.

Basically, US-64 is suited only for long-term investors who want to invest without too much risk and also want to make some money. And even as a long-term investor, you must periodically review its health and relative performance to continue with the fund.

So, don't just overeact to the news that US-64 will skip dividend this month-end. As I have mentioned above, there are ways to tackle this. But if you are in dire need, I suggest that you look at other options first to raise capital. Failing that you can sell US-64 units. Otherwise, wait till May 2003 because your money isn't going anywhere but only up.

Fund Update: During the week, the Sensex lost 69 while the broad-based BSE National Index was down by 40 points. Amongst equity funds losers outnumbers the gainers. The biggest gainers amongst open-end equity funds were: Taurus Starshare (3.10%), Libra Taxshield '96 (2.83%), Libra Leap (2.69%), JM Basic (1.25%). And the losers were: Birla IT (–6.43%), Pioneer ITI Infotech (-4.95%), UTI Software (-4.93%), ING Growth Sectors Portfolio (-4.89%).