Uti Braces For Plausible Redemption Pressure

The Unit Trust of India is expected to increase allocation to money market instruments to meet a possible redemption pressure from investors due to liquidity squeeze following the announcement of RBI measures. UTI sources said the fund is expecting redemptions in US 64 which is a balanced fund.

The market was yesterday agog with rumours of heavy redemption pressures on UTI due to sharp increase in call money rates. "Since FIIs have been net sellers in the market, UTI may find it difficult to sell off shares from the US 64 portfolio to meet redemption pressures. It may also stop making significant purchases. This could adversely impact the sentiment in the market as UTI has been a net buyer in the market," a dealer at a leading foreign brokerage said.

 

UTI officials clarified that there is no indication of a significant redemption pressure at this stage. "We are currently evaluating the implication of the measures announced by the Reserve Bank of India and the redemption pressure that we are likely to face as a result. We believe that since large corporate investments have been in US 64, we may face redemptions. Though so far there is no significant indication, we are geared to face any kind of pressure," a source said.

UTI officials believe that even if corporates opt for partial redemption, there will not be any impact on the Rs 20,000 cr corpus of US 64. "For a large scheme like US 64, a few hundred crore worth of redemption would not make any significant impact. However, small funds or open ended schemes with a smaller corpus may be affected due to the pressure," the source added.

However, UTI expects institutions to opt move out of open ended schemes only. To combat any possible pressure, UTI normally keeps liquid assets in its portfolio through money market instruments. "We would increase the allocation made for the money market instruments so that we can meet any redemption pressure.

A portion of US-64 investment is in the money market for liquid cash," the source said. Another scheme where institutions have significant investment is the Inter Institutional Special Fund Unit Scheme (IISFUS). However, since this is close- ended, there will be no pull out from it.

"The money market mutual fund may perform well. However, if the general squeeze in the market dominates, then money market mutual fund cannot be a replacement for it," the UTI source added.