The signal is clear. Unit 64 is in deep trouble. It can no longer be assumed that dividend distribution will be maintained at 20 per cent (which roughly works out to a yield of 13 per cent at current prices of the units); indeed it will be prudent to expect a sharp cutback in the distribution for 1998-99.

The dividend distribution for 1996-97 haemorraged reserves by Rs 400 crore. In so far as is known, the distribution for 1997-98 was covered without dipping into reserves. Presumably the payout was covered by earnings during the year, but the possibility that proceeds from sales of new units in July 1998 were used in support of payout cannot be ruled out.

This is a worrisome unknown; worrisome because, if true, Unit 64 has dipped into capital. But the point surely is that with reserves turning negative, Unit 64can from now on only pay what it earns. And what it earns from 70 per cent of the corpus invested in equity is subject to high fluctuations in prices in secondary markets.

UTI's explanation for reserve depletion is odd. Share prices went into a free fall after Pokhran-2; the BSE sensex fell from 4,147 points on May 5 to 3,251 points on June 30. This fact, it is claimed, was not known to UTI when it declared the 20 per cent dividend for 1997-98 on June 30! Had UTI taken cognizance of the fall, it would have had to cut dividend. UTI obviously chose not to know the severe post-bomb erosion that had taken place in the value of its equity investment. Thus, reportedly, UTI now holds that the June 30 low was an ``aberration''. Alas, even on September 28, the Sensex hovered around 3,200 points. UTI was forced by its auditors to recognise that the ``aberration'' would not go away. Hence the post-dividend payout provisioning for the loss, and mega reserve haemorrage. Unit 64 subscribers after July 1 can accuse theUTI management of bad faith. Unit 64 collected huge subscription by not disclosing that its assets had severely lost value.

The UTI management feels that it owes the public no disclosure since Unit 64 is not NAV-driven. Here precisely lies the rub. The Unit 64 buyer has to take UTI's selling price, repurchase price and last dividend payout as given; but the buyer has no means of knowing if the UTI management is arbitrary regarding each of these announcements. There is no transparency. The investor has to take UTI on trust, which, given UTI's exposure to the market, is now severely stretched.