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US 64 : RISKY YET PREFERRED

US-64 has been the flagship fund of Unit Trust of India. It operates on administered price mechanism fixed every month. US-64 scheme has over two crore investors in its fold and has been declaring uninterrupted dividends for the last 36 years. The scheme has been under pressure for quite some time now for maintenance of dividend and purchase and sale prices. US-64 has maintained a dividend of 18 percent or above since 1989-90 with one bonus in the ratio of 1:10 in 1995-96.

Unit trust of India (UTI), the oldest mutual fund in India has recently (28th July 2000) disclosed its portfolio in its oldest, largest and most in demand scheme of US-64, for the first time in history.

^{Net Assets}

^{Presently US-64 scheme is a SEBI non-compliant
scheme. The net assets under US-64 (only 75 percent) aggregate to Rs.20593.63 crores and
on the basis of the estimated unit capital of Rs. 15114 crores, the NAV works out to be
Rs. 13.625 per unit as on 30th June 2000. The portfolio disclosed by UTI is only 75
percent of the total portfolio but it appears that the balance 25 percent is not
significant. This disclosure shall certainly provide transparency in the scheme and bring
the fund managers more closer to the investors. It is also a step forward for moving on to
net asset value (NAV) based prices in future.}

^{PORTFOLIO

Provisional portfolio as on June 30, 2000 (unaudited)
with name of issuer, instrument and percentage to total market value in that order is as
under:

^{RBI-Government security}
^17.57

^{Company name}
^{Equity shares}

^{Reliance Industries}
^11.34

^{Reliance Petroleum}
^4.26

^HFCL
^0.19

^Infosys
^3.52

^ITC
^3.45

^{Satyam Computers}
^2.45

^ICICI
^2.28

^SSI
^1.89

^{Hindustan Lever}
^1.79

^{Global Tele Systems}
^1.77

^MTNL
^1.76

^SBI
^1.74

^{Tata Steel}
^1.45

^{Hindalco Industries}
^1.25

^HDFC
^1.23

^{Visual Software}
^1.22

^{Zee Telefilms}
^0.88

^{L & T}
^0.86

^NIIT
^0.71

^{Pentamedia Graphics}
^0.70

^{Ranbaxy Laboratories}
^0.59

^{ICICI Bank}
^0.57

^IPCL
^0.55

^BPCL
^0.51

^{Morepan Labs}
^0.40

^VSNL
^0.37

^{Company name}
^{Term loans}

^ICICI
^0.62

^{Company name}
^NCD

^{Jindal Iron & Steel}
^1.33

^IDBI
^1.02

^ICICI
^0.66

^{Hindustan Cables}
^0.44

^{Company name}
^Warrants

^{Reliance Petroleum}
^1.85

^{The percentage to total market value is 75.22. Total
market value of net assets Rs. 20,593.63 crores.

NEW LOOK OF PORTFOLIO

The portfolio disclosed by UTI reveals that 52.98 percent
of the net assets are invested in equity shares of only 26 companies. This aggregates to
Rs. 10910.50 crore. Earlier it used to be widely distributed over a large number of
companies. About 17.57 percent (ie. Rs. 3618.30 crore) is invested in government
securities whereas only 4.07 percent (Rs. 838.16 crore) is tied up in term loans. Out of
the total portfolio, about 36 percent is held up in 11 new economy stocks.

If we look at fund exposures in the last one year, we
find that US-64 is now more into new economy stocks. Although Reliance Industries top the
list, new entrants include Global Tele System, SSI, Satyam Computers and increased
exposure in Himachal Futuristic, Infosys and MTNL. This is evident from following
comparison in order of holding in June 99, December 99 and June 2000.

^{June 1999}
^{December 1999}
^{June 2000}

^{Reliance Industries}
^{Reliance Industries}
^{Reliance Industries}

^ITC
^{Reliance Petroleum}
^{Reliance Petroleum}

^{State Bank of India}
^ITC
^{Himachal Futuristic}

^MTNL
^{Larsen & Tourbo}
^Infosys

^TISCO
^{Himachal Futuristic}
^ITC

^{Reliance Petroleum}
^Infosys
^{Satyam Computers}

^{Larsen & Toubro}
^{Zee Telefilms}
^ICICI

^{Pentafour Software}
^{Pentamedia Graphics}
^SSI

^{Hindustan Lever}
^{State Bank of India}
^{Hindustan Lever}

^{Grasim Industries}
^ICICI
^{Global Tele Systems}

^{US-64 has over past two years restructured its portfolio
after its reserves went negative in 1998. This exercise included.

^{Growth in fund in 1999-2000 with a total corpus of
Rs. 15114 crore.}
^{Exit from many PSU stocks.}
^{Enhanced weightage into technology stocks (SSI,
Global Tele Systems, HFCL, Infosys, Satyam, Pentamedia etc).}
^{Top exposure in Reliance group continues.}
^{Government securities form major portion.}
^{Fund’s portfolio is diversified but reduced to
lesser number of stocks.}
^{Quality of unknown 25 percent portfolio comprising
equity and debt is not known.}

^{ASSESSMENT

The overall portfolio appears to be concentrated in
selected stocks and as such is a bit risky. But it also looks to be dynamic and ambitious
and may in times, when market is in good mood, outperform the general market index.
Logically, if the portfolio is too wide spread over a large number of companies, the
impact of performing stocks would get adversely impacted by poor companies and the fund
may not be able to out perform the market. Internationally, good fund managers assign more
weightage to equities or sectors, if they are bullish on particular stocks or sectors.

The fund being diversified as it is today, is appropriate
for high networth individuals and companies in tax bracket. If we take tax free dividend
into account, tax adjusted returns can be said to be commensurate with risks as well as
benefit of capital loss could be availed.

SAFETY

According to one recent survey conducted by National
Council of Applied Economic Research (NCAER) and Securities and Exchange Board of India
(SEBI), Indian investors have ranked US-64 next to bank deposits and bullion which
indicates investors favorable perception for the fund.

OUTLOOK

It is prudent for UTI to disclose, the portfolio to the
extent of 100 percent instead of 75 percent. The suitability of the investment for risk
averse investors also needs to be disclosed by indicating that the returns on the
investment would fluctuate in accordance with the trends in prices of stocks forming part
of portfolio.

It is expected that once the fund moves to NAV based
system, it can avoid portfolio uncertainty as NAV’s would provide for better
disclosure, transparency and governance.

Sanjiv Agarwal

Feedback}}}}

^{RBI-Government security}	^17.57
^{Company name}	^{Equity shares}
^{Reliance Industries}	^11.34
^{Reliance Petroleum}	^4.26
^HFCL	^0.19
^Infosys	^3.52
^ITC	^3.45
^{Satyam Computers}	^2.45
^ICICI	^2.28
^SSI	^1.89
^{Hindustan Lever}	^1.79
^{Global Tele Systems}	^1.77
^MTNL	^1.76
^SBI	^1.74
^{Tata Steel}	^1.45
^{Hindalco Industries}	^1.25
^HDFC	^1.23
^{Visual Software}	^1.22
^{Zee Telefilms}	^0.88
^{L & T}	^0.86
^NIIT	^0.71
^{Pentamedia Graphics}	^0.70
^{Ranbaxy Laboratories}	^0.59
^{ICICI Bank}	^0.57
^IPCL	^0.55
^BPCL	^0.51
^{Morepan Labs}	^0.40
^VSNL	^0.37
^{Company name}	^{Term loans}
^ICICI	^0.62
^{Company name}	^NCD
^{Jindal Iron & Steel}	^1.33
^IDBI	^1.02
^ICICI	^0.66
^{Hindustan Cables}	^0.44
^{Company name}	^Warrants
^{Reliance Petroleum}	^1.85

^{June 1999}	^{December 1999}	^{June 2000}
^{Reliance Industries}	^{Reliance Industries}	^{Reliance Industries}
^ITC	^{Reliance Petroleum}	^{Reliance Petroleum}
^{State Bank of India}	^ITC	^{Himachal Futuristic}
^MTNL	^{Larsen & Tourbo}	^Infosys
^TISCO	^{Himachal Futuristic}	^ITC
^{Reliance Petroleum}	^Infosys	^{Satyam Computers}
^{Larsen & Toubro}	^{Zee Telefilms}	^ICICI
^{Pentafour Software}	^{Pentamedia Graphics}	^SSI
^{Hindustan Lever}	^{State Bank of India}	^{Hindustan Lever}
^{Grasim Industries}	^ICICI	^{Global Tele Systems}