The trust had gone on record some time ago--when news about the US-64 reserves turning negative hit the headlines--to say that it may bring down the equity exposure of the flagship scheme.

"The only way in which the strategy to hold two-thirds of the portfolio in equity will backfire is if the markets remain in the dumps for the next two years. This is something only doomsayers will believe in. The UTI or the government does not subscribe to this view at all," a government source said.

The other critical factor which could have led to UTI shelving its plan for a cut in its equity exposure is the fear that if this happens the markets couldsink further.

"The UTI has been the sole buyer in the market for the past couple of weeks. If it stops buying or is even perceived to be not buying, the market would just crash. Even for its own interest this does not augur well. In any case, we expect the market to recover shortly, and hence there is no reason to believe why the trust should cut down its exposure to equity," said the source.

"On the other hand, there are not too many debt issues entering the market. It does not make sense to just start picking up debt paper simply because one has to cut down the equity exposure. Currently, we do not feel any need to do so," said a UTI source, saying that any restructuring of the portfolio would take place as and when required.

UTI had, in June-end, revealed that its equity portfolio in US-64 was about 64 per cent. Subsequently, in end-July, it was pointed out that the percentage would be brought down to 60 per cent over a period of time. However, when the new UTI chairman, PS Subramanyam took over, heannounced that he would not mind the equity portfolio going up to even 70 per cent. Then the trust was hit by reports of a sharp depreciation in its equity holdings which had led to its reserves turning negative. At this point of time, UTI officials were of the view that they would bring down the equity exposure to 60 per cent.

UTI sources said that some banks had already started picking up US-64 units in keeping with the government move asking them to do so. UTI officials declined to give out any details about sales and repurchase figures, saying that the trust had decided not to reveal these on an ongoing basis as this led to the market getting to know about its strategy.

"Why, do all the other mutual funds not reveal the repurchase and sales on a continuous basis? Why must we do so? All we can say is that this year, till October, our sales outstripped repurchases," an UTI official said.

Interestingly, UTI has taken a decision to announce sales and repurchase price for two months at a time ratherthan one month as it has traditionally done. "We have started off this time by announcing the prices for November and December and plan to make this a practice for some time at least. This will dispel rumour-mongering in the market of the trust reducing its repurchase price and thus leading to panic," the official said.

INSIGHT
Confusion on nature of scheme

The trouble with UTI is that it is yet to make up its mind on whether the US-64 is an income or growth scheme. If it is an income scheme, and returns are to be regular, then much of the corpus should be invested in debt. If, on the other hand, the UTI wants to position the scheme as growth-oriented, then the corpus should be chiefly invested in equities. Most investors in Unit-64 will, however, prefer to treat it as an income scheme. Unfortunately, the UTI knows that if it sells equity, it will result in driving the market, and the scheme's NAV will slide down still further. Hence it has little alternative but to stick to equities forthe time being.