The long and illustrious innings of Mastershare is about to take a new turn. After an uninterrupted 16-year track record of paying dividends, UTI's Mastershare 1986, is likely to turn open ended. The AMC will consider the same at its board meeting to be held on December 23, 2002. The fund was due for redemption in October 2003.
This move will offer an encashable arbitrage opportunity for investors. The scheme's net asset value is Rs 11.26 (as on December 13, 2002) while its last traded market price was Rs 9.95 (December 13). This will mean a 13 per cent gain for any buyer if the NAV remains at this level, though one may incur some market risk for a brief period. However, this could well vaporise in early trades on Monday itself. The AMC's desire to convert Mastershare into an open ended scheme -- almost a year ahead of its due redemption -- is in line with other closed-end Master series going open-ended – Mastergain, Masterplus, Mastergrowth, Grandmaster and the Master Value Unit Plan.
Last year, UTI Mastershare declared a dividend of 10 per cent, a drop of over 6 per cent over the previous dividend of 16 per cent. Despite a lacklustre performance in the past five years, Mastershare has a robust long-term track record. It shows a handsome total return of 18.41 per cent since launch in October 1986. These returns assume the reinvestment of 15 dividends besides three bonus issues and two rights offers.
The conversion of UTI Mastershare into an open-end fund will leave little opportunity, if any, for closed-end fund investors. With Mastershare hoping to go the open-end way, Morgan Stanley Growth Fund will be the only other actively traded closed-end equity fund available to investors. The latter currently trades at Rs 9.35 against its NAV of Rs 12.39. Despite a good showing, the scheme is trading at a steep discount because its redemption is due in early 2009.
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