The UTI's performance for the year up to June 30, 1997 has been better than expected. Many UTI schemes were facing repurchase pressures, resulting in their corpus being whittled away. This process has now stopped. In UTI's largest scheme, the US-64, redemptions have been much lower than before. This has emboldened UTI not only to maintain dividend on the Unit-64 scheme, but also to hike its repurchase price. Aggregate annual sales under all UTI schemes have risen 11 per cent to Rs 9,100 crore. There has been a net inflow of around Rs 1,100 crore under all its schemes, indicating that pressure on the largest mutual fund has eased.

Of course, it is not as if everything is hunky-dory. For the Unit-64 scheme, repurchases continue to be much higher than sales. Furthermore, the dividend on Unit-64, this year too, will be paid out of reserves, albeit to a lesser extent than in 1995-96. This means that what will be gained as dividend will be lost in terms of NAV. It is also true that UTI's new monthly income schemes were responsible for a large chunk of the resources garnered, and probably the attraction of assured returns was responsible for the good response. But with indices shooting up, there is reason to believe that UTI's problems could be over. Moreover, even if we consider total returns on the US-64 scheme, ie, taking the dividend yield as well as the loss on repurchase, the returns on Unit-64 work out to be higher than the comparable total return on the BSE Sensex over the same period. This should ensure an inflow of funds for the scheme, perhaps even from corporates.

The bourses can now look forward to the absence of formidable selling pressure from UTI. This, and a spate of new funds from the Trust should ensure steady flow of funds into the markets. The markets boom so far appears to have been fuelled mainly by FII-buying. For the boom to be broad-based domestic funds too must come to the markets, and institutions such as UTI are the vehicle through which they will invest.

UTI's maintaining dividends on its schemes is not only a signal of confidence, but is also meant to attract the investor. With yields on debt instruments headed south, equity should regain lustre. For mutual funds to be attractive once again, however, one anomaly created in this year's budget should be removed. Dividends declared by mutual funds too should be tax-free, just like any corporate dividend.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.