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Under a Single Umbrella

The merger of five MEPs will enhance liquidity and reduce UTI's complexities

The Unit Trust of India's five—of the total seven—closed-end equity-linked saving schemes (ELSS) will no longer be in operation now. Before you hit the panic button, let's tell you that UTI has decided to merge its five Master Equity Plans (MEPs) into a single fund. Named Master Equity Plan Unit Scheme (MEPUS), this scheme, however, is yet to receive clearance from the Central Board of Direct Taxes. Launched every year as a 10-year closed-end ELSS, the five funds that we are referring to are: MEP '93, MEP '94, MEP '95, MEP '96 and MEP '97.

Since the above-mentioned MEPs have an almost-similar portfolio and investment mandate, UTI by merging these funds has tried to reduce the complexities involved in their management. These funds together have assets worth Rs 709.68 crore under management as on January 31, 2003. With the three-year lock-in having expired, MEPUS will be a plain-vanilla equity diversified fund and not an ELSS.

That apart, MEPUS will not be open for fresh subscription. As a result, no new investments will be allowed. In effect, this means that the scheme won't have a maturity period and the units can be redeemed through the year at the existing net asset value (NAV). Partial repurchase will also be allowed subject to maintenance of a minimum balance of Rs 5,000.

The decision to create a single entity will enhance liquidity, as existing unit holders can exit without paying a load. Currently, MEPs charge a 2 per cent exit load for redemption before maturity. But MEP '93—due for redemption in March—unit holders will not benefit from this. On the other hand, unit holders who opt for MEPUS will get units in proportion to the NAV of the existing MEP. The face value will be Rs 10 and new units will be issued in fractions of up to three decimal places. The performance history of the merged funds now will cease to exist.

Two other such schemes, MEP '98 and MEP '99, have not been included in the list as some unit holders have made investments in these schemes to realise tax benefits under Section 54 EB of the IT Act. These unit holders are thus stuck with a seven-year lock-in. Therefore, these schemes will continue to operate as separate closed-end ELSSs.

In a nutshell, although this merger won't affect your investments, it will make you a unit holder of a bigger MEPUS. But what's in it for UTI? This merger will save the AMC the headache of sending redemption cheques to unit holders on maturity of the scheme. Instead, now investors will have the discretion to decide whether to exit the fund or to stay invested. Overall, this merger move is a step in the right direction towards making these closed-end MEPs more competitive.