The sale price of US-64 has been hiked to Rs 14.55 from October 1 from Rs 14.40 last month while the repurchase price has been hiked to Rs 14.25 from Rs 14.10 last month as part of a fire-fighting exercise which the trust launched to allay the fears of investors. The markets were agog with reports that the net asset value (NAV) of US-64 has fallen and that UTI is dipping into its reserves.

Banks and corporates rallied around UTI in holding that there was no cause for undue concern. The top ones said that they had no plans to dump their holdings. Incidentally, not a single trade was recorded at US-64 counter on Wednesday at the wholesale debt market (WDM) of the National Stock Exchange, where the scheme is listed.

The prospects for corporates to get out of US-64 may not be possible foranother reason. If they push for repurchase, UTI might be forced to sell its existing holdings in these corporates which could upset the plans of the corporates lest they land into rival's hands. UTI has over 35 million investors under the US-64 scheme which has a corpus of Rs 22,000 crore - the largest scheme in the country.

The trust was forced to resort to this hike following the erosion in net asset value (NAV) as the investments under the US-64 scheme in the stock markets depreciated last year. The problem arose when the repurchase and sale prices of US-64 were higher than the NAV of the scheme, indicating that an investor in the scheme is paying and getting a higher amount than the intrinsic value of the scheme. With NAV ruling below the sales and repurchase prices, UTI had to use up a part of its reserves to fund its repurchase from the unitholders.

As a result, the negative balances in the reserves of the US-64 scheme has amounted to Rs 1098 crore during the accounting year ended June 30. Thissituation was created after the US-64 investments in equities - following the stock market depression - depreciated by Rs 3,566 crore. The reserves of Rs 2,468 crore were not sufficient to meet this depreciation, thereby creating the negative balance of Rs 1098 crore.

According to a senior UTI official, the negative balance of Rs 1098 crore as on June 30, 1998 has now come down to around Rs 150 crore. This follows fresh purchases and less redemptions under the US-64 scheme. ``We don't expect redemption pressure. There was a net inflow in the last three months,'' said a UTI official.

``The negative balance in the US-64 scheme is actually only a notional loss that is on paper which varies with the market movements. Subscribers to US-64 should take it only as a notional loss which is a book entry and changes with the movement of markets,'' said a former UTI official. US-64 is the only mutual fund scheme which has not disclosed the NAV to the investing public. UTI officials say that the scheme has investmentsin equity, debt, term loans and real estate making the valuation extremely difficult. As per the SEBI rules, all mutual funds are required to disclose the NAVs of their schemes.

``The increased repurchase and sale price would give the investors ample confidence that there is nothing to worry and UTI has actually bolstered the confidence of its investors by increasing the repurchase price,'' said a corporate source. Bajaj Auto and its group companies who have invested around Rs 200 crore in US-64 do not want to surrender their holdings in US-64. ``We have been making investments in US-64 since the past 15 years and are not planning to withdraw our holdings in the scheme. The fact is that the depreciation was due to falling markets which will come up once the market moves up again,'' said a Bajaj Auto official.

Out of the US-64 corpus, 65 per cent of the funds is invested in equities and the balance in debt and real estate. Earlier when equity exposure was at 30 per cent and 70 per cent was in debt, thescheme did not face any problems.

Sources in Sebi and UTI indicated that the entire matter had been blown out of proportion and this according to them, could be the handiwork of a bear cartel which could have gained by creating panic in the market. Sensex which dipped by 60 points on Tuesday fell by 44 points on the Bombay Stock Exchange on Wednesday. The worry of brokers is that UTI -- the largest player in the Indian markets -- may not be able to support the market by purchasing shares in view of the depreciation in its investments.