A Bridge Too Fair

The Unit Trust of India's move to gradually reduce spreads between the sale and re-purchase price of its units has encouraged short-term investors (particularly corporate investors) as it provided high returns over short periods.

The reduction in spreads coupled with a stable distribution policy was responsible for changing the investor profile of the scheme from small investors to a mix of long-term investors (individuals) and short-term/ money-market related investors (corporates), the Deepak Parekh Committee Report on US-64 states.

Until the early 1990s, UTI's flagship scheme US-64 maintained a spread of 5-6 per cent between the sale and repurchase prices. This comparatively large spread was apparently designed to discourage the entry of short-term investors into the scheme earlier. However, from 1993-94, the spread between the sale and repurchase prices gradually declined and now stands at 2 per cent.

 

The growth in prices from year to year has only been marginal, with the compounded annual growth rate in prices being 1.31 per cent per annum over the entire life of the scheme after accounting for a 1:10 bonus in 1995-96.

The report said the UTI had historically followed the policy of trend pricing, for US-64, which is not related to the scheme's net asset value (NAV). The pricing is based on a special sale and re-purchase price in July and thes