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Sunday, Nov 24, 2002

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UTI Master Value Unit Plan: Hold

Aarati Krishnan

UNITHOLDERS in the Master Value Unit Plan (MVUP), the close end equity fund from the Unit Trust of India can stay with in the fund for now. MVUP is proposed to be made open-ended from January 1, 2003. Thereafter, unitholders will have the option to exit the fund at NAV-based prices.

However, the track record since launch has been good and the fund is one of few options available that seeks to focus on small/ mid-cap stocks.

MVUP is slated to undergo a couple of changes over the next year. One, it is to be re-oriented from focussing on "B" group stocks to the "value" style of investing. This appears to be a progressive move.

A clearly-defined orientation towards low valuation stocks is certainly more desirable than a focus on any group of stocks, irrespective of their merit. Second, the fund is likely to be among the set of UTI's NAV-based schemes, which will be taken over by a new Asset Management Company as part of UTI-II. The scheme will then be subject to the SEBI Mutual Fund Regulations.

This is also a positive development as the scheme will then be subject to SEBI's prudential norms on investments and valuation of thinly traded/ illiquid securities. However, as a matter of caution, investors in the fund should watch out for any significant shift in the portfolio after the makeover.

Suitability: As with other funds focussed on small/mid-cap stocks, MVUP carries an above-average risk profile. Investments in small/mid-cap stocks come with the risk of high volatility, limited liquidity and high transaction costs. Portfolio churning may also be high. Only investors comfortable with large swings in their investment returns from year to year should stay on with the fund.

Performance: Since launch, MVUP has generated annualised returns of around 14 per cent, against returns of around 8 per cent on the S&P CNX Midcap 200 index. The S&P CNX Nifty has generated nil returns on a point-to-point basis from the time of launch of the fund.

Despite its initial focus on B-group stocks, in recent times, the fund has stayed away from small/mid-cap stocks of doubtful quality/low liquidity. Instead, it stuck to mid-cap and large-cap stocks with reasonable fundamentals.

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