The Special case of UTI

                           UTI faced difficult situation during October 1998 and July 2001. In 1998 for the first time, the reserves of UTI's main Scheme viz. US - 64 became negative. In the year 2000 - 01, UTI slashed dividend on its schemes and stopped repurchase under US 64.

This created a crisis of confidence and the trust of investors on the UTI started vanishing. Many institu­tional investors who happened to know the ailing condition of the Fund surrendered their holding of units for repurchase before UTI came out with the suspension of repurchase scheme.

These investors escaped from their losses as they had surrendered their units at a better rate ruling at that point of time before suspension of repurchase facility.

The crisis prompted the Government to advise splitting of the UTI schemes into 2 main schemes viz. US 64 and US 2002. The US 2002 scheme is an open-ended balanced scheme with daily sale and purchase at NAV based prices.

Thus investors in the scheme will not get any assured return or guarantee from government. The value of units will be based on stock market prices of securities in which the scheme has invested its funds.

The holders of US 64 scheme were divided into 2 groups viz. those who were having units up to 5000 (small investors) and others having units above 5000 as on a cut of date of June 30, 2001. The holders up to 5000 units were assured of Rs. 12 per unit (face value Rs. 10) for payment in May 2003.

For those whose holding exceeds 5000 units will get Rs. 12 per unit up to 5000 units and beyond that at face value. Further these holders were given option to get money at the price mentioned above or to convert their holding into 6.75 per cent tax free bonds. Thus US 64 scheme which was the investment avenue for lakh of small and retail investors had a fateful end in 2003.

Customer Service

"Customer is the most important visitor in our premises. He is not dependent on us. We are dependent on him. He is not an interruption on our work. He is the purpose of it. He is not an outsider on our business. He is a part of it. We are not doing him a favour by serving him. He is doing us a favour by giving us an opportunity to do so" said the Father-of-the Nation, Mahatma Gandhi long ago.

The Gandhi an concept of customer accepted by banks exhibit their customer orienta­tion. Transition of banks from class banking to mass banking and thrust upon profitability in recent period has led them towards customer orientation.

Now it is their duty to accept the principle of customer as "King" in service industry in the present era of cut-throat com­petition. With the advancement of science and technology, our world has reduced to a glo­bal village. Thus, change is, both inevitable, and desirable. In such a situation, customer orientation has become the key word for competitive success.

The Net Asset Value of a Mutual Fund Scheme

The Net Asset Value of a Mutual Fund Scheme is basically the per unit market value of all the assets of the scheme. It can be explained with the help of the following example:

Simply stated, NAV is the value of assets of each unit of the scheme, or even simpler value of one unit of the scheme. Thus, if the NAV is more than the face value (Rs.10), it means that the money invested has appreciated and vice versa.

NAV also includes dividends, interest accruals and reduction in liabilities and expenses, besides Market Value of investments.

Supposing the present market value of the invest­ments made out of Rs.50 crore becomes Rs.98 crore, and then NAV of each unit under the Scheme will be Rs.19.60. It means one unit purchased at Rs.10 earlier is now worth Rs.19.60. In India, SEBI prescribes the method of computation of NAV.

Based on the NAV the Mutual Fund will announce its sale and repurchase price. Few expenses like establishment ex­penses will be deducted from NAV to arrive at Repurchase/Sale price of Units.

For example, Rs.19.70 - 19.50, which means Mutual Fund, will be prepared to repur­chase the units from present holders at Rs.19.50 and sell it at Rs.19.70. Although the market value of the Fund will change on daily basis depending upon the market price of the equi­ties on which the Fund has invested the money, the fund usually announces its sale and Repurchase Price for once a week or a fortnight.

One must remember that a single mutual fund may have different schemes under its management with varying corpus value and type's of schemes.

For example, one scheme may be Equity Fund Scheme, other Debt Fund Scheme, the third a mixture of Equity and Debt Scheme, etc. Sometimes, the fund may be sector specific like 'IT (Information Technology) Equity Fund', 'FMCG Equity Fund' (Fast Moving Consumer Goods Industries) etc.

As the NAV changes with time, so do the prices at which the investor can buy and sell these units. There is a small difference between the buy and sell prices because of the trans­action cost involved in buying or selling.

Open Ended Schemes offer to the investor's complete flexibility with regard to his in­vestments as he can invest or disinvest any amount, any time. Besides an open ended scheme offers almost instant liquidity to the investors.

It may be noted that open ended schemes are not listed on the stock market and the investor can buy or sell these units only from and to the Mutual Fund at NAV related paces.