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BoI Double Square Plus's problem

Aabhas Pandya

The widening gap between BoI Double Square Plus's net asset value (NAV) and the assured return of Rs 400 is staring Bank of India Asset Management Company in the face again. BoI Double Square Plus is due for redemption in August this year at an assured return of Rs 400 per unit. On the other hand, the NAV of the fund is hovering around Rs 358 as on May 24, 2000 after retreating from an all-time high of Rs 430 in February this year. This translates into a gap of Rs 42 per unit. Based on the last available unit capital of Rs 3.5 billion, the AMC has to bridge the shortfall of Rs 1.47 billion on the latest NAV. Thus, while the fund currently has a corpus of Rs 12.58 billion, it has to achieve a size of Rs 14.05 billion to meet the redemption price of Rs 400 per unit.

Thanks to a rising market in the early part of 2000, the NAV of the fund had crosses the Rs 400-barrier on February 2. The fund has aggressively restructured the portfolio in favour of the fancied infotech, communication and entertainment (ICE) stocks in the last one year. This gave a major boost to the NAV, which gained a whopping 97 per cent to move up from Rs 218 on May 5, 1999 and touched a high of Rs 430 in February this year.

However, the sharp sell-off in ICE stocks since March has pulled down the NAV by 17 per cent from its February high though the fund has managed to outperform the Sensex. The 30-stock benchmark has lost around 30 per cent in the same period. The outperformance by the fund reflects that the fund manager was able to liquidate a part of the portfolio before the selling pressure gained momentum. And though the fund has outperformed the benchmark by a healthy 13 per cent, it will provide little solace to the fund management since it is at the mercy of the market to shore up the NAV to Rs 400.

The units of BoI Double Square Plus are listed on the Bombay Stock Exchange. The units of the scheme are again trading at a premium to the NAV after the price had slipped below the NAV when the latter was hovering around the Rs 400 mark. On May 25, unit of BoI Double Square Plus closed at Rs 379 on the BSE, which translates into a premium of 5.73 per cent to the NAV. If an investor were to buy the units from the market at the current price of Rs 379, he will gain Rs 21 or 5.54 per cent three months down the line when the scheme comes up for redemption. This translates into a simple annualised return of 22.16 per cent.

BoI AMC also offers repurchase in the scheme and the units are currently being bought back at a price of Rs 300. However, the repurchase is available only for original allottees and investors, who have bought units from the market, will have to wait till redemption.

Source: Value Research

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