The tax-free bonds issued to investors in lieu of Unit Scheme ’64, the once-popular investment option from the erstwhile Unit Trust of India, are coming up for redemption on 31 May. Virendra Kumar Jouhari, a 71-year-old New Delhi resident, wants to withdraw the money he started investing in the scheme more than 30 years ago. He has received some calls from mutual fund agents, asking him to reinvest the redemption money in the plans they are offering. But, Jouhari hasn’t decided yet, and is not sure what to do with the money. Financial advisers say the bond-holders should take a decision based on their needs.
“Some of our clients had sold these bonds in the secondary market as they are actively traded on the National Stock Exchange (where they were listed). For the rest of the clients, our advice is based on their needs,” says Tushar Chhabra, head of advisory services at Elite Wealth Management, a New Delhi-based wealth management firm. He has about 20 clients who own US-64 bonds.
So, if an investor wants to play it safe, Chhabra recommends fixed maturity plans (FMP) or monthly income plans (MIPs). For those who can take the risk, he suggests funds that invest in stocks.
FMPs invest in corporate bonds and other interest-bearing instruments and have a pre-determined maturity period, which can vary from three months to 15 months. MIPs invest 10-15% of the money in stocks and the rest in bonds. So it’s capable of giving better returns than a plain bond fund, though with a little more risk.
Gaurav Mashruwala, a Mumbai-based financial planner, does not recommend schemes, especially equity-based ones, from UTI Mutual Fund, one of the two entities created to manage Unit Trust of India’s schemes following a restructuring at India’s oldest fund house in 2003. According to him, several schemes from other fund houses have outperformed UTI Mutual Fund’s schemes. Investors should look at funds that offered better performance, Mashruwala says.
UTI Mutual Fund has 23 equity funds and 34 bond funds. Among its open-ended equity funds, UTI Infrastructure is the only fund among the top 20 best-performing funds based on their returns for three years. UTI Mutual Fund offers big incentives for agents and distributors to bring the US-64 bond investors into any of the existing schemes. According to Valueresearchindia.com, a portal that tracks mutual funds, the fund has given a 44% annualized return during the three-year period ended 29 April. It was the 14th best performer among the 105 funds with a three-year performance history.
Among the bond funds, UTI’s monthly income scheme is among the top-rated funds by Valueresearchindia.com.
Other fund houses which want to corner some of the Rs8,000 crore worth of US-64 redemptions offer capital protection schemes, which promise to limit the loss to the portfolio if the stock market turns volatile.
And, those who think they are not cut out for stock markets can consider a fixed deposit. State Bank of India offers 9% interest on deposits for 2-10 years and 9.25% for one to two years for senior citizens such as Jouhari, who form the chunk of UTI-64 investors. The last day to submit the bond certificates for redemption is 25 May. Investors holding up to 200 bonds don’t have to surrender their bond certificates as the proceeds will be directly credited to their accounts. The bonds can be surrendered at any of the offices of UTI financial centres or at UTI Technology Services.