The desire of SEBI to bring about a convergence of the pricing of US64 and the NAV cannot be faulted. But the wisdom in over accelerating such a fundamental change in this mammoth fund shows a lack of appreciation for the plight of small investors. When fundamental changes are contemplated in an existing system, an appropriate time frame is absolutely essential to prevent harsh fallout on the existing users of the system. Otherwise the system itself will collapse. This has been proved in the past in the handling of Primary Market reforms as well as NBFC reforms. In both cases the goal was good intentioned but the time frame for implementation was too short and led to the death of the very industry which was sought to be protected by the regulation. Now a similar miscalculation of ignoring the sentiments of 18.8 million investors could spell the death-knell for the UTI the institution of which we were all proud off.

Just as UTI was announcing the new US 64 prices and the possibility of 10 % tax free yield, Kothari Pioneer was announcing a record 35 % dividend on the Bluechip Fund showing the potential of equity based mutual funds. Even US^$ itself had recorded a substantial gain in NAV during the last few months. This indicated that if UTI had been patient and tried to gradually work its way, it would have succeeded in bridging the gap between the prices and the NAV without hurting the investors. For clearing a mess that was accumulated in over three decades, a longer correction time was quite in order.

We can draw a parallel to the UTI s strategies with our army’s successful war strategies in the Kargil. The success of the army was built on some strategic decisions such as keeping off the post-mortem on how the intrusion went unnoticed and the refusal to be bound by a time frame for evicting the intruders. At the same time the army accepted the diplomatic responsibility of avoiding the crossing of LOC. A similar wisdom was called for by the UTI but it failed to respond appropriately.

Now the 18.8 million investors have to seek alternate pastures. But the retreat from US 64 has to be planned with finesse so that the loss in transferring of investments is kept to the minimum.

There appears to be three options open to them depending on their individual preferences on liquidity.

Investors who are desirous of regular income with very high liquidity can switch to long term Bank Deposits where they can earn 11.5 % in large Banks. They should simultaneously shift their idle SB funds to either Unfixed-Fixed Deposits (by whatever name it is called) or to good mutual funds with cheque facility (like Kothari Pioneer).

A part of the funds (not more than 25% to 35% of the funds available) can be parked with good Co-operative Banks where the Deposit Insurance facility is available.

The third option for higher returns are the Bonds of ICICI or IDBI where funds may have to be blocked upto 7 years for a return of around 13.5 %. Since it takes upto two months to get the money back from UTI, investors may have to apply for repurchase well in advance and keep cash ready when the Bond schemes open.

So start planning your retreat from US 64 and commence strategic redeployment before it is too late. The parting gift that investors hope from UTI is an on the spot settlement of the repurchases. Investor associations should prevail upon UTI to open special counters for such settlement to help aged investors encash their investments without hassles.

Na.Vijayashankar

naavi@vsnl.com

10^th July 1999