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Major reform package for troubled UTI
Monday, 02 September 2002, 19:30 IST |
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NEW DELHI: Millions of investors in the troubled Unit Trust of India (UTI), the country's largest mutual fund manager, heaved a sigh of relief Saturday after the government unveiled a major reform package to ease liquidity pressure.
The package, which includes fresh infusion of 
145 billion to meet redemption liabilities, is aimed at streamlining the operations of the troubled financial giant.
As part of the package, the government has decided to spilt the Unit Trust of India (UTI) into two companies and meet the liabilities of US-64, its flagship fund scheme, and other assured return schemes, said Finance Minister Jaswant Singh.
The government had also decided to introduce an ordinance to repeal the UTI Act, Singh told media persons after a crucial meeting of the Cabinet Committee on Economic Affairs (CCEA) here.
"It's a good move to restore scores of middle-class investors' confidence in the Unit Trust schemes," said Dhirendra Kumar, director of Value Research, a New Delhi-based mutual fund industry research firm.
"The move will also boost stock market sentiment. UTI was the main seller in the last few sessions but with this bailout package the selling pressure is likely to ease significantly," Kumar told IANS.
The reform package for the UTI, which manages 600 billion in assets, comes close on the heels of a blizzard of allegations of financial irregularities and management wrongdoings at the mutual fund.
In July last year, 20 million investors, mostly middle-class professionals and pensioners, were rudely shocked after UTI banned investors from selling or buying into the US-64 scheme for the next six months.
The ban was imposed to stem large-scale withdrawals from the fund. The US-64 scheme is the most popular in the stable of 87 schemes run by the UTI.
Although the suspension was later ended following a public outcry, UTI was faced with a shortage of money to repay investors in its flagship US-64 fund and other assured income schemes.
Singh said the government had decided to honour all redemption guarantees of US-64. The government's liability on this account is estimated at about 60 billion.
In respect of assured return schemes, the current shortfall at UTI is estimated at 85.61 billion.
The government will also consider certain tax concessions on US-64 with a view to providing an incentive to unit holders to remain in the scheme, Singh added.
US-64 historically delivered high returns, but it also ran into trouble periodically. In 1998, the government pumped $900 million into the fund to keep it afloat and promised reforms that were never implemented.
Regarding the splitting of the UTI into two companies, the finance minister said UTI-I would be the old protected UTI comprising of US-64, while the UTI-II would comprise all net asset value-based schemes.
UTI-II would have a professional chairman and board of trustees and would in course of time be privatised, Singh said.
Singh said the UTI Act would be repealed through an ordinance and both UTI-I and UTI-II would be structured according to the regulations of the capital market watchdog, Securities and Exchange Board of India (SEBI).
Created in 1963 by an act of Parliament, the UTI was meant to be a scheme to mobilise the savings of small investors. Investments in UTI were rated amongst the safest in India, second only to money invested in gold or bank deposits.
Source: IANS
145 billion to meet redemption liabilities, is aimed at streamlining the operations of the troubled financial giant.
As part of the package, the government has decided to spilt the Unit Trust of India (UTI) into two companies and meet the liabilities of US-64, its flagship fund scheme, and other assured return schemes, said Finance Minister Jaswant Singh.
The government had also decided to introduce an ordinance to repeal the UTI Act, Singh told media persons after a crucial meeting of the Cabinet Committee on Economic Affairs (CCEA) here.
"It's a good move to restore scores of middle-class investors' confidence in the Unit Trust schemes," said Dhirendra Kumar, director of Value Research, a New Delhi-based mutual fund industry research firm.
"The move will also boost stock market sentiment. UTI was the main seller in the last few sessions but with this bailout package the selling pressure is likely to ease significantly," Kumar told IANS.
The reform package for the UTI, which manages 600 billion in assets, comes close on the heels of a blizzard of allegations of financial irregularities and management wrongdoings at the mutual fund.
In July last year, 20 million investors, mostly middle-class professionals and pensioners, were rudely shocked after UTI banned investors from selling or buying into the US-64 scheme for the next six months.
The ban was imposed to stem large-scale withdrawals from the fund. The US-64 scheme is the most popular in the stable of 87 schemes run by the UTI.
Although the suspension was later ended following a public outcry, UTI was faced with a shortage of money to repay investors in its flagship US-64 fund and other assured income schemes.
Singh said the government had decided to honour all redemption guarantees of US-64. The government's liability on this account is estimated at about 60 billion.
In respect of assured return schemes, the current shortfall at UTI is estimated at 85.61 billion.
The government will also consider certain tax concessions on US-64 with a view to providing an incentive to unit holders to remain in the scheme, Singh added.
US-64 historically delivered high returns, but it also ran into trouble periodically. In 1998, the government pumped $900 million into the fund to keep it afloat and promised reforms that were never implemented.
Regarding the splitting of the UTI into two companies, the finance minister said UTI-I would be the old protected UTI comprising of US-64, while the UTI-II would comprise all net asset value-based schemes.
UTI-II would have a professional chairman and board of trustees and would in course of time be privatised, Singh said.
Singh said the UTI Act would be repealed through an ordinance and both UTI-I and UTI-II would be structured according to the regulations of the capital market watchdog, Securities and Exchange Board of India (SEBI).
Created in 1963 by an act of Parliament, the UTI was meant to be a scheme to mobilise the savings of small investors. Investments in UTI were rated amongst the safest in India, second only to money invested in gold or bank deposits.
Source: IANS