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Some hope for victims of US-64 error
Thursday, 15 May 2003, 19:30 IST
MUMBAI: Investors seeking to redeem their Unit-64 (US-64) schemes for cash but were wrongly issued bonds by the Unit Trust of India (UTI) have till May 31 to obtain cash at par value.
According to M. Kumar, president of marketing at India's largest mutual fund, investors who were wrongly issued bonds in lieu of redemption cheques can get their bonds discharged at the nearest UTI office till May 31. From June 1 onwards, all investors would have to sell the bonds in the open market.
"We will arrange for the sale of the bonds in the open market from June 1," Kumar told IANS.
However, it will be touch and go for investors as UTI will complete dispatch of encashment cheques and bonds only next week. Taking into account the usual delay in postal services, most investors will have only a few days to get their bonds discharged by the May 31 deadline.
But Kumar was confident that investors would not lose out by selling their bonds in the open market as they are "even now quoted at a premium".
There is however no guarantee that the value of the bonds would not fall below their par value after June 1, observers say.
The 
100 bonds guaranteed by the Indian government would earn an interest of 6.75 percent over a five-year period, after which they may be redeemed.
It is still not clear how many investors have been wrongly issued bonds instead of encashment cheques.
"Only two-three cases have been noticed in each of our branch offices," Kumar claimed.
However UTI employees in Borivli, suburban Mumbai, said there were scores of complaints in their branch alone.
"The bonds and payments are still being dispatched and more complaints may come in during the next few days," an employee at the Borivli UTI office said.
The extent of the goof-up, attributed to a "processing error" by the UTI's investor cell, will be known only after all bonds and encashment cheques have been dispatched.
"Of the 2.3 million unit holders, 600,000 have opted for encashment," said Kumar. These unit holders account for 17 percent of the US-64's value. The other 1.6 million unit holders accounting for 83 percent of US-64's value opted for bonds.
Analysts say years of mismanagement have substantially eroded the values of UTI's portfolios. At one time, US-64 alone managed a portfolio worth more than 300 billion. Its units that traded at 14.75 a few years ago are now worth only 5.50 each.
With scores of investors standing to lose their savings, the government stepped in and guaranteed purchase of each unit at 12 as on May this year. Investors were also given an option to trade their units for a tax-free bond instead of cash.
The bonds, guaranteed by the government, give an annual interest of 6.75 percent. What is more, the interest is exempt from income tax and the bonds can be freely traded in the market.
Analysts say the government expects the corporate sector to buy the bonds and avail of the tax benefits thereby lessening the load on the government and UTI.
However, small investors and senior citizens who have little exposure to the stock markets are thronging to redeem their units for cash as they have lost confidence in the country's biggest mutual fund.
Source: IANS
100 bonds guaranteed by the Indian government would earn an interest of 6.75 percent over a five-year period, after which they may be redeemed.
It is still not clear how many investors have been wrongly issued bonds instead of encashment cheques.
"Only two-three cases have been noticed in each of our branch offices," Kumar claimed.
However UTI employees in Borivli, suburban Mumbai, said there were scores of complaints in their branch alone.
"The bonds and payments are still being dispatched and more complaints may come in during the next few days," an employee at the Borivli UTI office said.
The extent of the goof-up, attributed to a "processing error" by the UTI's investor cell, will be known only after all bonds and encashment cheques have been dispatched.
"Of the 2.3 million unit holders, 600,000 have opted for encashment," said Kumar. These unit holders account for 17 percent of the US-64's value. The other 1.6 million unit holders accounting for 83 percent of US-64's value opted for bonds.
Analysts say years of mismanagement have substantially eroded the values of UTI's portfolios. At one time, US-64 alone managed a portfolio worth more than 300 billion. Its units that traded at 14.75 a few years ago are now worth only 5.50 each.
With scores of investors standing to lose their savings, the government stepped in and guaranteed purchase of each unit at 12 as on May this year. Investors were also given an option to trade their units for a tax-free bond instead of cash.
The bonds, guaranteed by the government, give an annual interest of 6.75 percent. What is more, the interest is exempt from income tax and the bonds can be freely traded in the market.
Analysts say the government expects the corporate sector to buy the bonds and avail of the tax benefits thereby lessening the load on the government and UTI.
However, small investors and senior citizens who have little exposure to the stock markets are thronging to redeem their units for cash as they have lost confidence in the country's biggest mutual fund.
Source: IANS