Fund to Bond to Cash
1964: UTI launches US-64, an open-ended balanced fund
1990-1995: Dividend rate of US-64 is 18%. It rises to 26% by 1995
1995-99: Net asset value of US-64 falls drastically
1999: Deepak Parekh panel set up to suggest US-64 revamp, bailout
2001: UTI suspends sale, purchase of US-64 units for six months
2003: US-64 mutual fund ends; investors offered cash or tax-free tradable bonds, with 6.75% annual interest
2008: Bonds mature on 31 May, putting an end to the US-64 saga
As he awaits the redemption cheque for his US-64 bonds, Lucknowbased Rakesh Mathur thinks about why he had invested in the Unit 64 scheme in 1981. His daughter was born in the same year and the agent selling the units of the only mutual fund in India at the time had told Mathur that his Rs 700 investment could grow to Rs 25,000 by the time she turned 18. For a government officer earning about Rs 2,000 a month, it meant securing his child’s financial future.
To convince him further, the agent took Mathur to other clients who had stashed away bundles of the then ubiquitous green-blue certificates in steel trunks as means of post-retirement income. Some clients had also invested in the Monthly Income Plan (MIP), the other popular scheme of the Unit Trust of India, and were getting guaranteed returns of 12%.
What followed in the 1990s was the by-now familiar tale of the US-64 transition—from being one of the country’s most trusted savings schemes with over 20 million investors to being reviled as a poorly managed and scam-ridden fund.
Now, after being split and shred, the remains of the scheme have been redeemed, with the last of the US-64 investors left with some money but few dreams. Some, like Delhi-based Amrita Unnikrishnan, 60, plan to give the fund a fitting farewell by blowing the redemption amount on travel. Others like Noida-based Brigadier (retd) Bhupender Singh Dadwal, 59, are more circumspect and plan to reinvest the proceeds.
Between Unnikrishnan and Dadwal is an entire country of investors who put their trust in a scheme that was intended to take care of them when they retired. While Unnikrishnan is relatively unscathed and sees the money as some sort of windfall, Dadwal is still unsure when it comes to his investment proceeds.
By now every pink paper and TV channel worth its name has analysed US-64 in minute detail, and has told you a hundred different things you can do with the redemption amount. UTI too sent out mailers to the last of the US-64 investors recommending some of its schemes. It’s difficult to ignore the end of a legend and US-64 definitely was a legend in its time.
But what have the investors learnt from the rise and fall of this behemoth? For many, US-64 was their first “real” investment in an instrument other than a bank account. For others, it was simply the opportunity of a lifetime— invest a few hundred rupees and get several thousand back. For many who invested in this scheme in the 1970s and 1980s, it was a one-stop financial plan, or worse, their retirement plan.
It was a mutual fund that never ran like one, at least not as we now know mutual funds to be run. Its portfolio was a secret better guarded than the national borders and the scheme didn’t declare its net asset value (NAV). All that investors knew was the repurchase and sale price, which often didn’t change for weeks or months—no matter what the change in the underlying asset value.
Yet, it was India’s most trusted investment scheme for decades. In retrospect, investors like Mathur credit the scheme for introducing them to the world of investing beyond bank fixed deposits. It was only when the scheme ran into trouble that several investors first realised that their money was actually invested in stocks.
But then, in the early part of the new millennium, when investors were given the option to stay or leave, why did so many stay? Largely because they were all averse to taking risks or just ignorant about the market. “I was unsure where else to invest, so the tax-free bonds seemed attractive,” says Dadwal.
Given that the profile of most investors who will receive the redemption proceeds is risk-averse, it makes little sense to tout the benefits of pure equity. Since many of the investors who stayed on are also retired or nearing retirement, fixed-income instruments and balanced funds seem the best investment avenues (see box), much like what Mathur plans to do with his redemption amount. In a few cases where the risk appetite has increased, there are more lucrative but risky options like equities and equity-linked funds. The trick is in choosing the right vehicle.
Karl Marx once said that “historical events always happen twice: the first time as tragedy, the second as farce.” US-64 investors have hopefully learned valuable lessons from the tragedy of the scheme’s collapse. Those who would rather remain as ignorant today as they were 40 years ago are simply begging for a chance to star in the makings of a farce.
Reinvesting RedemptionIf you had invested in the US-64 scheme at its prime, you are at least 40-50 years old. Following are four ways to utilise the US-64 bond proceeds
FDs and FMPs
Return expectations 9-10%
Interest rates are quite high and banks are falling over each other to garner deposits.You can get up to 10% annual interest. Fixed maturity plans (FMPs) are also a good option.Their returns are equal to
Balanced funds, MIPs
Can’t withstand the tension when markets go into free fall? Opt for balanced funds that divide their corpus between equities and debt.If you are looking for aregular stream of income,go for a monthly income plan (MIP).
Equity mutual funds
Return expectations 15-20%
If you don’t need the money immediately and can afford to take risks, equity funds are a good bet. But keep in
Repay high-cost debt
Interest on loan