According to a press release posted on UTI (Unit Trust of India), US-64 will become a tax-free tradable bond maturing on May 31, 2008.
Below we have mentioned the body of the press release verbatim from UTI's website: It has been decided that the units of Unit Scheme 64 issued on or before 30th June 2001 either held by the original unitholders or by the buyers of these units in the secondary market after reopening of trading on 28th January 2003 will be treated as tax-free, tradeable bonds with effect from 1st June 2003. The Bonds will mature on 31st May 2008. The bondholders will be paid interest on their holding at such rate and frequency (i.e. half-yearly, yearly), which will be announced later.
As has been the case with UTI in general and US-64 in particular, there is very little clarity in its decision-making and the above communication underlines that. The communication does not mention the rate of interest (coupon rate) payable on the bond. The bonds are tax-free but will the interest income alone be tax-free or even the capital gains if any? What is the face value of the bond and how much will the investor get on redemption in May 2008? These are just some of the queries that a US-64 investor will want to know.
The moot point is - what should you do now? If you have less than 5,000 US-64 units, then given the government's ambivalent stand on UTI its advisable to redeem your units by May 31, 2003 at Rs 12.00 while you can (The administered price on US-64 is for investors with less than 5,000 units) If you haven't redeemed your units as yet and don't plan to either, then you could be venturing into murky waters so to speak. This is why:
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If the government has converted US-64 into a bond then it is guaranteeing to pay the principal and the coupon on the bond and this could run into billions. Is the government in a position to meet this financial commitment? Are these government-backed schemes sustainable?
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The coupon rate, which hasn't been announced as yet, is unlikely to be over 7%. The government's latest bond offering (Savings Bond Tenure 6 years) is at 7%. The yield on 10-year government paper is actually far lower, at a little over 6%. So investors should not entertain too much enthusiasm on the coupon rate being over 7%.
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The tax-free status is a carrot to ensure that investors stay with the fund to ease the pressure on redemptions. In all likelihood, the bond will trade at a discount to its issue price, which highlights lack of confidence in the instrument.
Our view on US-64 remains the same. (However, not all UTI schemes are in the same boat. We have covered some in the past that have performed reasonably well) Investors are better of redeeming at the earliest and exiting from US-64 while they can. The opportunity cost of staying with US-64 rather than a good private sector mutual fund can be significant. Investors need to realize that now more than ever they need to be with a solid investment manager and not in an investment whose time has long gone. Watch this space for our views on further developments on this front.
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| Comments |
Dewapujanprasad@gmail.com
Feb 19, 2020
Sir,
I want to redeem my all units of US 64 of UTI which were purchased by me vide unit certificate no 305960010002405 dated 23-07-1996.
Requirement is most urgent.
Thanking You.
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kinganjandutta@yahoo.co.in
May 03, 2020
How can I know about my unit 64 amount. |
preeti.kapoor3007@gmail.com
May 09, 2020
I have a few units under the scheme of US 64 and US 2002, what is the exact value of these? |
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