MUMBAI, February 20: Tata Mutual Fund has decided to drop guarantee for its Tata Income Fund from April 1998.The company has also reopened the scheme for fresh sales at no load.
It was floated in April 1997 as an assured-return scheme, offering 15 per cent return for the first year. Income for the remaining period was to have been declared at the beginning of each subsequent year.
In a release issued on Friday, however, Tata Asset Management -- theinvestment-manager to the fund -- managing director KN Atmaramani said that the guaranteed-returns plan was dropped.
The move was in keeping with the view of the Association of Mutual Funds in India (AMFI) that mutual funds should move away from guaranteed returns, Atmaramani added.
The Tata Asset Management managing director is on the association's board. The scheme was closed earlier than scheduled as interest rates were rocketing and the fund did not want to have excess money to service on a guarantee.
It had collected Rs 69.73 crore, exceeding itstarget of Rs 50 crore. It also did not open afresh for sale later, to protect existing investors.
The fund has honoured its commitment for the first year.
Under the regular option, the half-yearly dividend was paid in October for the first six months.
The release said that the next six months' dividend would be paid in April at the assured 15 per cent.
According to Atmaramani, this was possible because the amount collected was invested in debt-instruments giving an average gross yield of around 17 per cent, which after deducting the expenses and fees, earned a net return of above 15 per cent.
The scheme's net-asset value (NAV) under the regular-income option is Rs 10.66 and under the appreciation option, Rs 11.31.
While there will be no guaranteed return from April 1998, the fund is likely to pay reasonable returns compared to similar fixed-income instruments as the existing portfolio is invested in high-yield paper, Atmaramani said.
The fund is open for resale and investors can exit at any timewithout load. The idea of opening it for sales now is that the investor can take advantage of double-indexation if he joins in March.
Atmaramani said that he hoped the fund would be in a position to collect a good amount in 1998.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
