Equity fund option for UTI bondholders

Equity fund option for UTI bondholders
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First Published: Sun, Aug 12 2007. 09 06 PM IST
Updated: Sun, Aug 12 2007. 09 06 PM IST
Here’s good news for investors who have opted for UTI’s flagship Unit Scheme-64 (US-64) and Assured Returns Scheme (ARS). They can now convert their investments up to Rs1 lakh in these bonds to any of the existing schemes or the new fund offerings of UTI Mutual Fund (UTI MF).
The fund will convert these bonds at the face value of Rs100 along with accrued interest. If the investors were to sell these bonds on the National Stock Exchange, where they are traded, they would have got a much lower price as these bonds have been trading below their face value of late. Both the bonds have been trading in the range of Rs98-99 as per the latest trading price.
Earlier, in May, their market price dipped to a low Rs97. This means that some investors may even have sold their bonds at a loss.
The dip in the bond prices has been primarily because of the rise in interest rates since the time these bonds were issued in 2003 and 2004.
US-64 bonds, issued in 2003, offered a tax-free interest rate of 6.75%. ARS bonds, issued in 2004, gave a tax-free interest rate of 6.6%.
Both these bonds initially traded at a price as high as Rs125. With the rise in interest rates, the market price of these bonds has dipped sharply. There is an inverse relationship between interest rates and the price of debt instruments; when rates fall, the price goes up and conversely. At a time when fixed deposits have been giving a return as high as 8-9%, UTI bondholders have little incentive to hold on to such bonds.
That’s why UTI MF has offered the option to UTI bondholders to switch over to any of its existing or new schemes.
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First Published: Sun, Aug 12 2007. 09 06 PM IST
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