US-64 May redemptions at Rs 1,700 cr

The size of the fund at the beginning of the administered package stood at around Rs 12,000 crore.

According to UTI sources, 5.85 lakh applications came in the month of May for redemptions under the special package, totalling up to the Rs 1,700 crore figure.

The outgo of just around 32 per cent of the corpus size in the form of cash redemptions was mainly cushioned following the announcement of tax-free bonds (guaranteed by the government). Tax-free bonds were made available to US-64 investors as an option for cash redemptions. The effective yield for this bond comes to around 10.40 per cent for investors/corporates coming under the highest tax bracket.

US-64 units coming under the special package announced on August 2001 have been protected under the administered package till May 2003. From June 1, 2003, US-64 units will be replaced by US-64 tax-free bonds, which will then get listed on the bourses replacing US-64 units. From the total redemption of around Rs 3,900 crore, redemptions worth Rs 2,200 crore have come under the Rs 12 category in the last 21 months or up to the first two weeks of April 2003.

Meanwhile, the final redemption letter for the special package revealed that 84 per cent of investors have opted for the 6.75 per cent tax-free bonds. This means there would be an additional outgo of Rs 1,700 crore, apart from Rs 2,200 crore coming through earlier redemptions.

Investors who had invested in US-64 before July 2001 had been provided the facility of the special package. Under this package, unit-holders of US-64 would get a maximum of Rs 12, if they stay with the scheme till May 2003.

With every month, there was an increase of 10 paise in the special package category. However, this facility is only for those investors who hold 5,000 units or lower. Investors who hold more than 5,000 units had to stay loyal with the scheme till May 2003 to avail of the special package which will get them a maximum price of Rs 10 per unit. A substantial chunk of the outgo of Rs 1,700 crore of the May redemptions appears to have come from this Rs 10 per unit category.

However, in line with the attractiveness of tax-free bonds, units of US-64 are currently traded on the National Stock Exchange (NSE) at a premium of over two per cent to the maximum special package.