The Telegraph
Since 1st March, 1999
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Payout trickle dilutes US-64 dollops

Mumbai, Sept. 4: Hope-starved investors who have been promised dividends that flow into US-64 coffers from stock investments cannot count chickens before they hatch. While the money parked by the troubled scheme in shares is awesome, pay-outs come in dribs and drabs.

Warning that hopes of a reasonable dividend this year could turn out to be an apparition, analysts say US-64’s dividend income that will be transferred to UTI-I was around Rs 316.56 crore in the last financial year. The amount is niggardly when compared with the scheme’s mammoth unit capital of around Rs 12,000 crore.

That, say analysts, is hardly surprising. Dividend income is a piffling sum when measured against the market value of shares, which are bought and sold not for the returns they offer every year, but for capital appreciation.

The major equity investments of US-64 are Reliance Industries, which adds up to 9 per cent of its portfolio in value terms. ITC and Reliance Petroleum account for 6.30 per cent and 4.5 per cent approximately. Other shares held by the scheme are Lever, BPCL, Infosys, ICICI Bank, MTNL, Nalco, L&T, Tisco, Hindalco, SBI, HDFC, Satyam and Zee. The entire equity pile commanded a market value of Rs 8,050 crore in June 2002.

At the same time, US-64 has been pruning its equity exposure and is reported to have reduced its stake in 194 firms in line with a plan to achieve a 55:45 debt-equity mix.

Finance secretary S. Narayan said on Tuesday dividends from companies received by US-64 will be passed on to investors, not retained to bolster the fund’s net asset value (NAV). What sweetened the bait was the announcement that the money would not be taxed.

ITC, one of the companies in which UTI’s flagship scheme has poured in massive amounts, fetches a dividend income of Rs 16.85 crore only, analysts say. While its contribution to the dividend income is measly, the company’s shares are valued over Rs 800 crore.

“The dividend income in US-64 would translate into an insignificant amount,” said Dhirendra Kumar of Value Research, a premier mutual fund tracker. Some say sops offered by the government might not cut ice with investors. “These are not tempting enough to stay back.”

The government had announced tax sops for investors in US-64, primarily to stem redemption pressure. It included exemption from income and dividend tax on dividend earnings, besides waiver of capital gains tax on income from the sale of the holdings.

The announcements were prompted by fears that UTI would be swamped with redemption demands — something that would deepen the government’s fiscal woes.

If the redemption pressure on US-64 is contained at negligible levels, the government will be spared Rs 6000 crore from the kitty made for the scheme. The finance ministry had committed itself to over Rs 14,600 crore to meet possible liabilities from UTI’s assured return schemes.

“The best way to keep the flock together would be to enhance earnings by continuing with strategic sales,” said analysts. “Doing so would maximise the value of its portfolio. The other option, of course, is to hope for the best by praying for the markets to recover.”

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