Personal Finance: A Mutual Bonanza

Does the prospect of earning a tax-free return of 14 per cent a year, with the potential of doubling your money in less than 5 years, interest you? The Unit Trust of India's (UTI) Mastershare, which boasts an uninterrupted dividend-payment track-record since its launch in 1986, provides just such an opportunity.

It was trading at Rs 11.50 last fortnight against its Net Asset Value (NAV) of Rs 17.62--a discount of 34.73 per cent. A 7-year closed-end scheme, Mastershare was extended for 10 years when it first became due for redemption in 1993. It has provided investors a steady stream of annual dividends; in August, 1998, it paid out a dividend of 16 per cent. The only listed equity scheme to pay dividends, Mastershare has also floated 3 bonus and 2 rights issues in the last 12 years.

However, the scheme has been unable to keep pace with its more aggressive peers in the recent past. Its under-performance can be attributed to its size, which necessitates a portfolio with a large-cap orientation: the Rs 1,565-crore scheme has a spread of 245 stocks. Moreover, its funds are pre-dominantly deployed in value stocks, particularly in the core sector, which have failed to deliver in recent times due to the sluggish stockmarket.

Consequently, Mastershare has been a laggard in a year dominated by growth stocks. But, post-Budget 99, the scheme has witnessed an appreciation of 6.32 per cent, with its NAV rising from Rs 16.14 on February 24, 1999, to Rs 17.62 on March 10, 1999. At a price of Rs 11.50 on March 17, 1999, Mastershare provided a tax-free yield of 13.91 per cent per annum.

With the open-ended equity funds exempt from the Dividend Tax, the UTI should, ideally, convert Mastershare into an open-end fund. However, this is unlikely to happen because this will only help the investor--not the UTI. While the 10 per cent Dividend Tax will impact Mastershare's NAV negatively, it is expected to maintain its dividend at 16 per cent this year.

However, if the scheme does turn open-ended, the investor will get an exit opportunity at the NAV. With the fund available at a discount of 32.63 per cent, this could translate into a windfall--if the stockmarket stays steady.

company value % share (Rs crore) of equity
Hindustan Lever	167.89	11.02
ITC	149.58	9.82
TELCO	70.06	4.60
MTNL	56.43	3.70
VSNL	53.64	3.52
Hindustan Petroleum	50.80	3.33
Bajaj Auto	45.83	3.01
Reliance Industries	45.21	2.97
SKB Cons. Healthcare	43.36	2.85
Nestle	40.95	2.69
BHEL	39.37	2.58
Hindalco Industries	36.73	2.41
Indian Hotels	36.71	2.41

TISCO	31.25	2.05
Novartis India	28.64	1.88
IPCL	27.42	1.80
BSES	25.36	1.66
Bharat Petroleum	23.48	1.54
EIH	19.20	1.26
E. Merck	17.73	1.16
Mahindra & Mahindra	17.23	1.13
Parke-Davis	16.92	1.11
Burroughs Wellcome	16.15	1.06
Bata	15.08	0.99
Ranbaxy laboratories	14.63	0.96
As on December 31, 1998