For tax-saving purposes, my parents (who are retired now) invested in three UTI Master Equity Plans (MEPs)—MEP '95, MEP '96 and MEP '97. Since they don't follow the markets closely, they have stayed put. Could you please suggest what future course of action should my parents follow?
Arun Grover, via e-mail
It doesn't really matter if your parents don't follow the stock markets closely. However, to avoid anxiety, it's always good to keep an eye on your investments and re-align these with your financial objectives. Master Equity Plans or MEPs, as they are popularly called, are 10-year closed-end tax saving equity funds. These funds, which have a three-year lock-in, gave investors an incentive in the form of a tax rebate of 20 per cent on investment up to Rs 10,000 under Section 88 of the Income Tax Act. After completion of the lock-in period, the investment can be redeemed at an exit load of two per cent.
Unfortunately, returns from these schemes have not been inspiring enough to hold most investors beyond the lock-in of three years. After the completion of the mandatory lock-in, there has been significant erosion in the asset base of these MEPs. The three MEPs in question have largely maintained a well-diversified portfolio. So, till 1999, their returns closely followed that of the BSE Sensex. But since these funds remained bullish on technology stocks even after the technology collapse of March 2000, their returns took a severe beating. Since then, they have not been able to make up the loss. However, at present their portfolios are widely diversified. The exposure to technology stocks has been reduced in favour of defensives like FMCG and healthcare stocks.
Of the three schemes that your parents have invested in, MEP '96 by far has the best track record. It is the only scheme that has clocked a positive total return. In January 2001, it paid a dividend of 15 per cent. More recently, even MEP '97 has done well. The same doesn't hold true for MEP '95, which continues to languish.
UTI, however, is planning to merge all the MEPs (currently seven in all) into a single fund. Though, this won't affect your investment, it will make you a unit holder of a bigger and consolidated MEP with Rs 695 crore of assets under management. And, as these funds have a liking for large-caps, it may turn out to be a good investment over long-term. Thus, if this investment accounts for a small portion of your parent's total equity investment, it's better to stay invested. Otherwise, your parent's financial goal should guide their future course of action.