On this basis alone, dividend strippers are believed to have entered the scheme in the run up to book closure which began on June 15. During the first fortnight of June itself the scheme is learnt to have collected about Rs 600 crore. The yield based on a dividend of Rs 1.35 per unit at the June sale price of Rs 14.95 works out to around 9 per cent. The dividend is tax-free. A marginal hike in dividend, to say Rs 1.40, would alter the yield to 9.36 per cent.

Market experts believe that even if the Trust hikes the dividend marginally, it will have a strong psychological effect. ``For a large number of retail investors this will be seen as a reward for reposing faith in the scheme, which had rocked the market two years ago,'' says an expert.

This, they point out, would be a very important strategy when other funds are displaying a great deal of volatility. While hiking the dividend the Trust may not go in for a change in the pricing structure of the scheme. It also has the option of changing the pricing structure and maintaining the dividend. But a change in the pricing would have to be dovetailed with the NAV of the scheme. ``With the market pushed back after it peaked in February, such a move could cause instability in the scheme in terms of inflows,'' argues an analyst.

The Trust is expected to shift to NAV-based pricing in October when the busy season starts. The markets are expected to pick up steam during Diwali. Over the last one year, the scheme has seen a major turnaround with its NAV rising smartly. As on June 30, 2000, the estimated NAV was around Rs 14.20 compared to Rs 11.36 as on June 30, 1999.

Irrespective of the NAV, UTI has already booked profits and its net income at the end of March 2000 was Rs 1,927 crore. Even if the Trust hikes the dividend to Rs 1.40, the net income is enough to meet the dividend outgo.

Switching to NAV-based pricing would be all the more difficult, if one looks at the composition of the US-64 portfolio. The 29 top holdings of account for 75.4 per cent of the equity portfolio. Most of the 29 stocks are Sensex based heavyweights. Therefore, in a rising market, the transition for US-64 to NAV-based pricing would be smooth, point out market players.

At the end of March 31, 2000, the scheme had built reserves and surplus of Rs 4,223 crore and the market value of its assets were around Rs 21,000 crore.