Mumbai: Asset management companies (AMCs) and insurance firms are devising plans to corner some of the Rs8,000 crore worth of Unit Scheme ’64, or US-64, bonds that are coming up for redemption on 31 May.
While UTI Asset Management Co. Pvt. Ltd, the AMC for UTI Mutual Fund, has laid out an aggressive incentive package for its distributors and independent financial advisers to bring in investments, some rival firms are openly targeting US-64 bond investors.
These bonds were issued to investors in 2003 in lieu of units held in Unit Scheme ’64, the first mutual fund scheme in the country, after its original issuer Unit Trust of India (UTI) crumbled under the burden of assured-return schemes.
In 2003, as part of a restructuring exercise at erstwhile UTI (which was broken into two—Specified Undertaking of Unit Trust of India and UTI Mutual Fund), redemption in the scheme was suspended and investments were converted into a five-year bond, carrying 6.75% interest.
Following the restructuring, a large number of UTI schemes were transferred to UTI AMC. This is now India’s third largest AMC, managing assets worth Rs48,983 crore as on 31 March, behind Reliance Capital Asset Management and ICICI Prudential Asset Management Co. Ltd.
Under the UTI AMC offer, investors who wish to transfer the money to existing UTI schemes have to apply before 30 April. Investors holding up to 200 bonds don’t need to surrender their bond certificates, as the proceeds will be directly credited to their accounts. Others need to submit the bond certificates before 25 May. These bonds were trading on the National Stock Exchange till 23 April.
If any distributor or an independent adviser of UTI AMC manages to convert Rs10 lakh worth of US-64 bonds into any of the UTI’s existing schemes, he will be awarded a 5g gold coin, the value of which could be around Rs5,000-6,000 at present. The incentive goes up to 40g of gold for conversion of Rs50 lakh worth of bonds. Those who manage to convert Rs60 lakh will be entitled to a ticket to Italy, and those who bring Rs1 crore or more will get two tickets.
It’s been a common practice in the industry to offer incentives to distributors in various ways. AMCs either pay it from their own pockets or through an entry load which is levied on the investors when they invest in the fund.
“A lot of US-64 bond investors have been asking us for advice as to how they can re-invest the proceeds from the bonds. So, we sent out a communication to them and recommended some of our top performing schemes as an alternate avenue,” said Jaideep Bhattacharya, chief marketing officer at UTI AMC.
The AMC has also put in place a dedicated team to address queries of US-64 bond investors through a call centre, mobile phones and email.
SBI Funds Management Pvt. Ltd, the country’s sixth largest AMC, is also targeting the proceeds. The company released advertisements in newspapers inviting US-64 bond holders to invest in one of its schemes, Magnum Balanced Fund, which invests in both bonds and stocks.
According to industry sources, agents of a few insurance companies are also approaching the US-64 bond holders for converting the proceeds into insurance schemes.
“It’s dream money for any AMC as the typical US-64 investor used to invest and forget,” said Dhirendra Kumar, chief executive of Value Research India Pvt. Ltd, a New Delhi-based firm that tracks mutual funds.
However, some AMCs have a different view. “We are not targeting US-64 bond holders specifically, because that group doesn’t have a homogenous set of investors who have similar investment needs. If these investors are keen on investing in our funds, they will come anyway,” said Sanjay Santhanam, director for sales and marketing, Canara Robeco Asset Management Co. Ltd.
Anil Kumar, chief executive officer at Birla Sun Life Asset Management Co. Ltd, also said his company doesn’t plan to target US-64 bond holders. “We have a product and marketing calendar whereby we look forward to launch new products or target new customers. We do not have specific plan to target this segment.”