Panel Warns Uti Of Three Pressure Points : Nav Move

The Unit Trust of India (UTI) will encounter three distinct pressure points for redemption when its flagship scheme US-64 shifts to the net asset value (NAV) mode on January 1, 2002.

The Tarapore committee has warned that the institution should stand prepared to meet the pressure points which, according to it, could be when the NAV system for US-64 is introduced in January 2002, when UTI declares its results in July 2002 and in May 2003, the last month before the administered pricing scheme is to be fully phased out.

To avoid a recurrence of sudden redemption pressures as witnessed in April-May this year, the committee has recommended that US-64 should with immediate effect move over to an NAV-based pricing system.

It has also pointed out that as long as institutions are allowed to invest in US-64, the scheme would continue to face volatility. It has said, as and when US-64 is opened for sales, institutions should be totally debarred from investing in the scheme.

The committee has also said that sales of US-64 units should not be resumed till July 1, 2003 as during the period upto May 2003, there would be a parallel run of a NAV-based repurchase and an administered price repurchase. Opening up to sales could blur the liability under the administered price repurchase. "In effect, a Ponzi would operate under which new entrants would finance the outgo under the administered price repurchase," it said.