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Sunday, June 03, 2001













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Focus on US-64

Suresh Krishnamurthy

IT is June, and the spotlight reverts to US-64. What kind of dividend will be declared, and what will be the decline in the repurchase price, may be the questions a large mass of investors in India's biggest scheme want answered.

While it may be difficult to answer these questions with pinpoint accuracy, some general observations are indeed possible:

*For one, those investors who have remained invested and did not exit in May 2001 are more likely to be worse off.

*It has been seen time and again in the past few years that the repurchase price in May is more than the sum of the dividend declared in June and the post-dividend repurchase price. It is not likely to be any different this year. In fact, it may be worse this year given the sharp fall in equity prices which constitute around 67 per cent of the portfolio of US-64. Those who have any doubts should look at the performance of US 1995, a comparable balanced fund, last year.

It is quite correct to argue that when stock prices fall, investors in US-64 should expect a lower return. However, the reason for the lower return is not entirely because of the fall in stock price.

That the investment price for an investor is way ahead of the net asset value of US-64 is an important reason for the state of affairs. The mark-up over the NAV ensures that the portfolio has to appreciate by a significant percentage to start yielding gains to the investor. The problem is exacerbated when the portfolio is exposed to the losses in the stock market, as happened during this year.

Each year that an investor stays invested in the fund, the below market returns his investment would earn is only likely to get accentuated. Unless the sale and repurchase prices are linked to the NAV, returns necessarily would be poor compared to peer funds, even compared to those managed by the UTI.

The writing on the wall for US-64 investors has been quite clear for some time when: exit when the going is good. However, despite overwhelming evidence, investors have been steadfastly sticking on to their investments in the scheme. Is it a case of lack of awareness regarding the risk-return relationship?

Related links:
UTI net sales up


Section  : Mutual Funds
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