UTI's Mastershare offers high dividend yield apart from a blue-chip portfolio
A high dividend yield, 12 per cent gain on redemption apart from capital appreciation potential. What else can a fund investor ever ask for? This all-in-one instrument is none other than the first equity based mutual fund launched in the country -- UTI's Mastershare.
Launched as a closed-end fund in 1986, the fund was rolled-over on completion of its ten-year term. The fund offers liquidity by way of listing. It had a corpus of approximately Rs 1235 crores as on April 30, 2001.
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With a track record of uninterrupted dividends since launch, the fund has given an annualised return of over 20 per cent since inception. Mastershare has weathered the storm over three frenzied bull and bear phases. The fund manager's strategy has been to stay invested in blue-chip companies at all times.
Barring some periods during the infotech frenzy in 1999 and 2000, the fund has consistently outperformed the benchmark index. It has also been one of the best performing closed-end equity funds.
In the last one year ending April 30, the fund gave a return of -16.08 per cent against a sensex return of -24.44 per cent and nifty return of -19.61 per cent.
Average return on closed-end equity funds was only -17.46 per cent. The fall in open-end equity funds was far more steeper at 28.09 per cent during the same period.
For the past six years Mastershare has maintained a steady dividend pay-out of 16 per cent. At current traded price of Rs 12.45, the dividend yield works out to a handsome 12.85 per cent.
What's more exciting is the substantial discount the fund is trading at currently. The net asset value of the fund is 14.11, and at current traded price, the fund is available at a discount of 12 per cent.
The fund is due for redemption in October 2003. UTI has generally converted most of its closed-end equity funds into open-end funds about six months to an year ahead of the actual maturity. So in all likelihood, Mastershare will also be made open-ended sooner than later.
As the fund approaches redemption, the discount is likely to diminish. If the market stays around current levels till its open-ending or redemption, the investor would gain this 12 per cent straight away as redemption would be at the net asset value. And if the market improves, the investor will gain from capital appreciation.
Given the level of the market now, the probability of market delivering decent positive returns is quite high. Moreover, a close look at the portfolio suggests that the fund should witness healthy appreciation by redemption.
Mastershare, has a fundamentally strong portfolio of stocks with tremendous potential for capital gains. The fund is fully invested in equity instruments with a fairly diversified portfolio. The portfolio is a blend of growth and value picks. Sector allocation of fund is more-or-less in line with the index.
The fund's top holdings are leading players in different business areas. Top five holdings include ITC, Reliance Industries, Hindustan Lever, Infosys and Hindalco. And these account for 44 per cent of total market value. Top 20 stocks account for three-quarters of the net assets.
The charm of Mastershare is that, it offers a fabulous quality portfolio, even as it can be bought at a significant discount to its true asset value.
The only flip side is that, if the investor wishes to sell the units before redemption, he may have to do that at a discount. The discount may be lower, though, as the fund may be nearer to redemption.
Another risk is that, if the equity markets are not conducive at the time of redemption, investors might end up losing money. But that's a risk all equity investors have to undertake. But in some sense, the discount at which the fund is traded is like a capital protection.
Since, the investor is buying the portfolio cheaper, even if the net asset value plunges a bit, he will not lose. As long as the net asset value does not fall more than 12 per cent, the investor's capital is safe.