UTI-I invests corpus chunk in MF's ETF

Life Insurance Corporation, which is one of the sponsors of UTIMF, too has invested Rs 20 crore in the scheme.

UTIMF had garnered Rs 388 crore during the initial offer period between July 7-11.

The government had proposed to unlock value in the Rs 5,000-plus crore equity portfolio of the erstwhile Unit Scheme 64 by creating paper securities that can be traded on the bourses.

In this way, UTI-I need not sell its equity portfolio in the market. At the same time, the government has been able to realise money with the launch of Sunder units, which are sold in the market.

Currently, more than 72 per cent of US-64's equity portfolio is invested in stocks that make up the S&P CNX Nifty.

"These stocks can be bundled together with some amount of market sales and purchases to create equivalent lots of Nifty shares that can be exchanged for ETF units," a source said.

UTI Mutual Fund, the fund which houses schemes with market-related returns, has issued ETF units to authorised participants "" largely banks, financial institutions and big ticket brokers.

These authorised participants will, in turn, trade units on the exchanges, which can then be bought by retail investors.

But since the government, like any other authorised participant, gets Sunder units in return for the basket of Nifty shares offered to UTI Mutual, it can realise cash by selling these units in the secondary market.

Currently, there are two ETFs in the country "" Nifty BeES and Prudential Spice. However, neither has taken off because of liquidity issues. The two funds manage a corpus of less than Rs 30 crore.

ETFs are like index funds in that they mimic the composition of an underlying index. The only difference is that ETF units are freely traded on the exchanges like other shares. Sunder is an ETF based on the S&P CNX Nifty.