Bailout Boost For Us-64

The US-64 unit price today zoomed up 20 per cent on the wholesale debt market segment of the National Stock Exchange (NSE) enthused by the government's announcement of Rs 14,000 crore bailout package.

US-64 ended up 20.17 per cent at Rs 7.15 compared with its Friday's traded price of Rs 5.95. About 1.80 lakh units changed hands even when US-64's net asset value stood at Rs 6.02 as on August 30.

A bailout package announced by the government on Saturday along with the government's promise to offer tax incentives is believed to have boosted the US-64 price in the secondary market.

The government on Saturday announced a bailout package for the beleaguered UTI. The government also said that tax concessions would be extended to the US-64 scheme on dividend income and capital gains.

The bailout package involves a support of Rs 6,000 crore to US-64. This amount is the estimated shortfall in the US-64 scheme. The government will make good the shortfall through the issue of government securities tradeable in the secondary market. The finance minister is working out the details of the bailout.

As per the bailout package, investors who redeem US-64 units even after May 2003 will continue to get the administered repurchase price of Rs 12 per unit up to 5,000 units and Rs 10 per unit beyond 5,000 units. However, this facility applies only to old investors of the scheme. In fact, reports suggest that the units of US-64 issued after January 2002, when the scheme became NAV-based, would be transferred to UTI-II.

As per the scheme, UTI will be split into two companies - UTI-I, comprising US-64 and other assured return schemes, and UTI-II, to manage the remaining net asset value-based schemes. UTI-I will be managed by a government-appointed administrator and a team of officially nominated advisors. UTI-II will be headed by a professional chairman and board of trustees. UTI-II will be privatised eventually.