US-64: A survivor’s guide
A lifeline just about keeps investors afloat
US-64: Chronology of events
30 June 1998 1 July
UTI declares a dividend of 20% on US-64 and fixes a special sale price of Rs 14 per unit for July 1998.
UTI announces that the reserves of US-64 have turned negative to the extent of Rs 1,098 crore due to steep depreciation in its investments.
8 July
NSE lists US-64 in demat equity segment.
3 August
Sale of US-64 nets Rs 3,105 crore in July, higher by 30% over Rs 2,219 crore collected in July 1997.
29 September
UTI announces that the reserves of US-64 have turned negative to over Rs 1000 crore. Within five days of this disclosure, the fund reports redemptions worth 3% of its corpus. It announces a 15 paise increase in the repurchase and sale price of US-64.
1 October
To bring in greater transparency, UTI decides to disclose any appreciation or depreciation in the value of all assets of US-64 twice a year.
4 October 1998
With negative reserves of over Rs 1,098 crore, UTI chairman P S Subramanyam declares his intention to sell equity holdings.
5 October
The market crashes 224 points when UTI declares its intention to reduce equity holdings in US-64 by resorting to sales. The government infuses Rs 3300 crore by issuing a Special Securities Scheme. The Deepak Parekh Committee, headed by HDFC chief Deepak Parekh, suggests a speedy transition of all assured return schemes with a portfolio of risky assets to NAV-based schemes.
13 October
Despite tremendous pressure from investors, UTI decides against declaring the NAV of US-64 but declares it has sufficient liquid funds to prop up the market and check any further erosion in NAV.
14 October
Government considers granting tax exemption on dividend income from US-64.
19 October
Finance ministry advises UTI to step up repurchase price of US-64 units and maintain its 20% dividend.
22 October
Redemption rush abates and sales for September doubles to Rs 120-140 crore.
29 October
UTI raises the sale and repurchase prices of US-64 for November to Rs 14.70 and Rs 14.40 respectively and for December at Rs14.80 and Rs 14.50 respectively.
2 November
Finance ministry sets up a five-member committee under the chairmanship of HDFC chief Deepak Parekh to work out a package to bail out US-64.
30 November
The Parekh Committee suggests that sale/repurchase price be made NAV-driven till February 2002. It also recommends an investment of Rs 4,800 crore by the government as a bail-out plan for US-64 and advises the creation of a special purpose vehicle (SPV) for realising the intrinsic values of illiquid stocks held by US-64.
2 December
Finance minister Yashwant Sinha says the depreciation of Rs 3,566 crore in the value of investments of US-64 which was reflected in the balance sheet was notional. He also says that 20% dividend declared on 29 June 1998 was not paid out of reserves but out of the Rs 3,225-crore earnings made during the year.
4 December
UTI hikes the sale and repurchase prices by Rs 0.10 each in US-64 for January 1999.
8 December
Sebi asks the committee set up by UTI to restructure US-64 in way that any alteration does not result in panic among investors.
19 January 1999
The value of US-64's equity portfolio registers a recovery of Rs 2,000 crore since October 1998 and makes the NAV inch above par.
17 February
The Deepak Parekh committee recommends a fundamental shift in the asset composition of US-64 towards fixed income securities and provision of liquidity support by the government.
18 February
US-64 sees net redemptions of Rs 1,500 crore in the first six months of fiscal year ending June 30, 1999.
27 February
As a part of the bail-out plan for US-64, the government invests Rs 4,800 crore in SUS-99 to be floated by the UTI. The money pumped into SUS-99 is to be utilised to purchase government securities, thereby ensuring no immediate cash outgo to the Centre.
28 February
The bailout package for US-64 shores up the NAV of US-64 by 63 paise. Its negative reserves increase by Rs 1,500 crore to Rs 2,597 crore as on December 31, 1998.
14 March
17 March
The Deepak Parekh committee recommends US-64 to comply with Sebi’s Mutual Funds Regulations, 1996.
23 March
Deepak Parekh committee recommends ``strategic sale of equity holdings in US-64 to the highest bidder'' to enhance its NAV which had gone below par value of Rs 10.
24 March
UTI adds more equities in US-64 at the cost of fixed income investments including government securities.
18 May
UTI decides to revise the dividend policy for US-64 based on the recommendations of the Deepak Parekh Committee. The three main promoters of US-64 ---------- IDBI, LIC and SBI ----------- contribute Rs 400 crore as permanent capital for the scheme.
19 May
UTI reconstitutes the AMC for US-64 based on recommendations of Deepak Parekh Committee. The reconstituted AMC comprises five outside professionals and two senior officials of the Trust.
29 June
The corpus of US-64 dwindles by Rs 1,600 crore during 1998-99. While UTI registers Rs 4,600 crore fresh sales during the period, repurchases account for Rs 6,200 crore.
2 July
UTI maintains the debt-equity mix in US-64 scheme at 66:34 at the end of 1998-99, despite the Parekh Committee recommending a balanced weightage in view of the schemes yearly dividend distribution requirement.
11 July
UTI announces a dividend of 13.50% on US-64 scheme for the year ending 30 June, 1999.
19 July
IDBI to pump in Rs 250 crore into US-64 by purchasing units at Rs 13.50 per unit for July.
8 August
UTI witnesses net inflow of funds of Rs 1,028 crore into US-64 in July 1999 despite lowering annual dividend from 20% to 13.5% and increasing the spread between sale and repurchase prices.
2 September
Cyclicals and growth stocks spur US-64 scheme with 50% of the top 50 holdings of its restructured portfolio outperforming the Sensex by a wide margin.
9 September
US-64 witnesses a steep erosion of 13.34% or Rs 2,085.51 crore in its unit capital as on 30 June.
11 November
US-64 records an increase of 2.3% to Rs 13,857 crore during the quarter ending September 30, 1999.
28 February 2000
UTI chief declares that all fresh mobilisations in US-64 to be allocated to debt instruments, following a surge in equity component to 72%.
27 April
US-64 earns a net income of Rs 1,927 crore for the nine-month period ending March 31, 2000, a rise of 62% compared to the income in the six-month period ending December 1999.
30 June
UTI sets up a "corporate repositioning committee", headed by Y H Malegam, to revisit Deepak Parekh panel report and draw up a corporate plan for the fund.
3 July
UTI declares a dividend of 13.75% on US-64.
5 July
ALL recommendations save for three made by the high level expert committee chaired by HDFC chairman Deepak Parekh to restructure the Unit Trust of India have either been implemented or are under implementation.
7 July
The year-end unaudited reserves in US-64 swell to Rs 5,300 crore due to heavily churning the portfolio in favour of New Economy sectors and strategic sales.
16 July
US-64 mobilises Rs 488 crore in July, an increase of 41%, against Rs 346 crore in the same period last year.
10 October
The monthly portfolio of US-64 reveals an exposure of over 19% to Reliance group companies as on 30 September 2000.
1 December
US-64 increases its exposure in government securities to 18.09% against 16.34% in August.
29 December
UTI hikes the sale price of US-64 to Rs 14.10 for December while the repurchase price is increased to Rs 13.80.
19 February 2001
US-64 cuts exposure to New Economy sectors from 21.65% to 16.50% as of December 2000. Instead, it increases exposure to telecommunication from 6.24% to 7.30% and FMCG from 7.71% to 12.51%.
2 July
UTI declares a 10% dividend on US-64 and announces suspension of sale and repurchase on the scheme for 6 months.
4 July
UTI suspends sale and repurchase of US-64 units resulting in panic among investors. This stuns the investors and the BSE Sensex falls 114 points on the next day. Panic among investors due to suspension of repurchase and sales on US-64 and the consequent heat from the finance ministry forces UTI chief P S Subramanyam to resign.
9 July
Banks opt to advance funds to UTI at low interest rates. UTI decides to come out with a mechanism to provide liquidity to investors within 2 weeks.
11 July
SBI, Corporation Bank and other banks agree to provide a line of credit against collateral. The Bombay High Court directs UTI to file an affidavit in reply to a public interest litigation (filed by National Association of Small Investors) challenging its decision to suspend sale and repurchase of units under US-64.
12 July
The finance ministry shoots off letters to banks and large corporates seeking details of redemptions from the scheme in May.
13 July
Government’s rescue package for the bail-out to be restricted to Rs 10,000 per investor while UTI declares it requires an infusion of Rs 3,000 crore to cover the principal amount and a dividend of 10% declared by Subramanyam. Government relaxes bank ceiling on borrowings against securities for UTI.
14 July
The long search for a head at ends with M Damodaran, joint secretary in banking division of the finance ministry, being declared as the new UTI chief.
15 July
Finance ministry rolls out a Rs 300-crore rescue package which offers unitholders the opportunity to liquidate their holdings and achieve capital appreciation through a step-up repurchase till May 2003. Investors can offer up to 3,000 units for repurchase between August 2001 and May 2003. The repurchase price in August fixed at Rs 10 per unit to be increased by 10 paise every month.
17 July
The new UTI chief, M Damodaran, admits the NAV of US-64 is below par value of Rs 10. The UTI management, along with the Investor Grievances Forum, decides to hold meetings with investors to explain them the current situation and future strategies.
18 July
The UTI chief nets seven public sector banks to formulate a financial assistance package for US-64.
19 July
20 July
The Central Bureau of Investigation (CBI) raids the residences of former UTI chairman P S Subramanyam and other senior officials in connection with a case of conspiracy relating to private placement of shares of Cyberspace Infosys. Other senior officials whose houses have been raided are executive directors M M Kapur and S K Basu and general manager Prima Madhuprasad. Late in the evening, CBI interrogates Subramanyam in connection with the fiasco.
Meanwhile, the government appoints a 3-member high level committee headed by former RBI deputy governor S S Tarapore to probe UTI activities.
21 July
24 July
25 July
UTI chief M Damodaran maps out a four-pronged strategy to restore investor confidence: moving the government for infusion of funds, paring the total corpus of UTI, splitting US-64 into 2-3 schemes and hiring professional fund managers. It also holds discussions with private sector banks for a line of credit.
26 July
27 July
30 July
31 July
Finance Minister Yashwant Sinha charges UTI of not paying attention to the warning of the previous Joint Parliamentary Committee of not resorting to high exposure in equities in the US-64 scheme.
1 August
Meanwhile, the UTI window opens for limited repurchase of 3,000 units at Rs 10 and meets with a total repurchase of 57 lakh units amounting to Rs 5.7 crore.
2 August
3 August
In his bail application, Subramanyam claims of having apprised the government on 18 May and 30 June on the state of affairs in UTI.
4 August
6 August
7 August
8 August
9 August
10 August
11 August
13 August
14 August
20 August
UTI chief M Damodaran, decides to revamp the portfolio of various UTI schemes with a three-pronged strategy in mind – avoid further losses, prevent the market from getting hit and make the value of holdings go up. It plans to exit scrips with marginal holdings to avoid difficulty in tracking and also those with heavy weightage in sectors UTI is not so bullish on. This will be done either by selling the holdings in the market or to strategic investors.
Besides, UTI is considering to divide some of its large schemes into small lots and hand them to private fund managers. Damodaran intends setting up asset management companies to ensure that each scheme has a sponsoring company, a fund and a management committee.
21 August
Meanwhile, senior Congress member Kapil Sibal moves a privilege notice in the Rajya Sabha against Sinha for having misled the House on the UTI problem by saying that Subramanyam had kept the finance ministry in dark about the possible freeze in US-64.
27 August
UTI aims at a major restructuring drive to improve performance and help recover from problems. It plans to set up more than one asset management companies to handle different schemes. The Malegam Committee, headed by Y H Malegam, recommends a three-tier structure for UTI, comprising a sponsor, trustee company and an asset management company.
6 September
UTI plans to transfer realty assets worth Rs 8.5 billion under US-64 to the Development Reserve Fund so as to reduce the cost burden.
13 September
JPC terms UTI’s apprisal of US-64 muddle just prior to the board meeting as unusual.
17 September
JPC declares that UTI had invested in two media companies – Broadcast Worldwide and Numero Uno International – through private placements despite its equity cell recommendation of not subscribing to the same.
5 October
Sinha rules out privatisation of UTI and declares that he would fully support UTI in any problem.
11 October
UTI plans to trim flab and become a lean organisation by introducing VRS for its employees. It has a total of 2,500 employees spread across 54 offices.
12 October
The Y H Malegam committee, set up in June 2000, recommends a strategic partner for UTI.
25 October
In its report on corporate repositioning, the Malegam Committee recommends against any government role in UTI restructuring. UTI decides to take a view on the Malegam Committee report.
27 October
Malegam Committee recommends that UTI should completely dispose of the equity investments in assured return schemes. The equity content in such schemes is in the range of 15-20%.
1 November
The government plans to rope in a multilateral financial institution as a strategic partner for UTI.
2 November
Mc Kinsey says UTI may need $ 500 mln to $ 1 bln to stay solvent.
3 November
The Malegam Committee report recommends RBI and LIC to convert their holdings and form a sponsoring company.
8 December
UTI threatens to sell NPA shares to competitor companies at higher prices.
15 December
UTI chairman M Damodaran asserts that all UTI’s schemes will comply with Sebi norms and become NAV-based by 2002. Meanwhile, the Tarapore Committee, which scrutinised the investment decisions of UTI, declares all the 19 recommendations of the Deepak Parekh Committee to be imprudent and recommends setting up a pre-investigative body to undertake detailed audit of the investments.
21 December
The Tarapore Committee reports that UTI exceeded its authority by sanctioning 76 additional transactions worth Rs 19.2 billion between July 1998 and June 2001.
24 December
The Tarapore Committee further reports that UTI had made fresh investments of Rs 1.66 billion in companies where existing investments were classified as non-performing assets. In eight of these cases, UTI had taken fresh exposure in companies which had already defaulted on payment. Meanwhile, the Centre decides to lend fiscal support to UTI, besides subscribing to liquidity bonds and asking banks to further extend the Rs 30-billion line of credit to the Trust.
26 December
UTI decides to swap the real estate and debt portfolio of US-64 with the Rs 200 billion n corpus of its 20 monthly income plans. The government decides to provide cash assistance of upto Rs 5 billion to UTI.
27 December
UTI decides to reduce the equity portion of US-64 from 61% to 55% and raise the debt proportion to 75% of total assets. UTI raises the minimum number of units to be redeemed from 3,000 to 5,000 units at either the repurchase price or the NAV, whichever is higher. Those investors holding more than 5,000 units allowed to redeem at either the NAV price or Rs 10, whichever is higher.
28 December
First time in the history of US-64, UTI declares its provisional portfolio to the general public.
31 December
UTI declares the first NAV of US-64 at Rs 5.81, which is 44% lower than its repurchase price of Rs 10.5 for January 2001.
1 January 2002
UTI meets with US-64 repurchases worth Rs 120.2 million at a fixed price of Rs 10.5 for January 2001. The finance ministry converts US-64 into NAV-based and declares its first NAV at Rs 5.81. The portfolio reveals that US-64 comprises Rs 500-crore dud stocks, constituting 3.6% of total assets. UTI decides to maintain a maximum of 55% in equities in US-64.
2 January
The NAV of US-64 drops down to Rs 6. As a part of its cost-cutting exercise, UTI decides to delist all schemes from stock exchanges by the end of January this year. Sale and repurchase for the schemes made available through the repurchase window.
5 January
Finance Minister Yashwant Sinha says the government is considering the suggestion of the Malegam Committee Report on UTI, which recommends induction of a strategic partner with 60% stake in UTI.
7 January
The Tarapore Committee reveals that UTI, for the year ended June 2000, failed to write back interest and investment provisioning for defaulted debt which was subsequently restructured, and by doing this, it inflated its income by Rs 441.39 crore.
8 January
UTI appoints 9 audit firms to probe investments in 88 companies identified by SS Tarapore Committee which broadly examines UTI’s investment activities.
9 January
JPC asks UTI to expedite enquiry into investment decisions which resulted in the NAV of US-64 and other schemes turning negative.
18 January
Besides open-ended funds, finance minister plans to extend tax exemption on dividends to close-ended funds also.
21 January
UTI appears apprehensive about shortfalls in its assured return schemes, particularly those maturing in a few months.
30 January
S S Tarapore, heading the inquiry commission on UTI, states in its report that UTI should not allow institutional investors to make fresh investments in US-64 as their continuance in the scheme poses a sustained challenge to the scheme's stability.
June 2002
UTI skips dividend for US-64 for the first time in scheme's history. Meanwhile, the government agrees to give a guarantee for up to Rs 1,000 crore in two tranches for meeting the shortfalls in its assured return schemes. UTI reduces its equity exposure by Rs 915 crore.
July 2002
The Centre announces a Rs 500-crore budgetary support to UTI to enable it to meet the shortfall between the repurchase price and NAV of US-64. Meanwhile, UTI approaches the government for a Rs 5,000-crore fund support to bail-out US-64.
August 2002
The government puts together another bail-out package for UTI and promises to honour the redemption guarantee and liability of Rs 6000-crore for US-64 and Rs 8561 crore for other assured return schemes. It offers tax concessions and 7-7.5% 10-year tax-free bonds to enthuse unit-holders to stay beyond May 2003. On 30 August, the day before the announcement, the Sensex moves up 67 points.
September 2002
The government issues an ordinance to restructure UTI which includes repealing of the UTI Act and bifurcating the Trust into UTI-I and UTI-II. UTI-I will comprise US-64 and other assured return schemes with a total asset base of Rs 25,000 crore. All NAV-based schemes with an asset base in excess of Rs 17,000 crore to go under the umbrella of UTI-II. The UTI board also decides to split US-64 into two schemes: UTI-I to have the administered price segment of US-64, while US-2002, the NAV-based segment will fall under UTI-II.
October 2002
The government issues an ordinance to restructure UTI which includes repealing of the UTI Act and bifurcating the Trust into UTI-I and UTI-II. Assisted by a board of advisors, M Damodaran, UTI's current chairman, set to become the public administrator of UTI-I. While for UTI-II, he will be assisted by professional managers.
November 2002
Meanwhile, in the end of November, UTI split US-64 into the old US-64 where the assured redemption price is available and new US-64 (US-2002) where the NAV-based prices will be applicable. The new scheme will remain open for sale to new investors at the NAV-based sale price to be announced on a daily basis. In the view of the split, the books of US-64 will remain closed from 2-14 November.
December 2002
The Parliament grants its approval for bifurcation of UTI into UTI-I and UTI-II. The Rajya Sabha approves the UTI Bill 2002, already passed by the Lok Sabha, by a voice vote. As per the bill, UTI-I will not float any new scheme and all the existing commitments will be met by the government. UTI-II will be started as a Sebi-regulated, asset managed and market competing scheme. All the UTI employees will either be put on the UTI-II register or absorbed in UTI Bank, with an option to take VRS.
SBI, PNB and Bank of Baroda obtain RBI permission for setting up an AMC to handle UTI-II. This LIC-led consortium is to invest Rs 2.5 crore each in the AMC which is likely to start with an initial capital of Rs 10 crore. The government plans to transfer UTI's NAV-based schemes with a total corpus of over Rs 17,000 crore to the new AMC and intends to privatise it after making if financially strong in 3-5 years.
January 2003
US-64 contemplates a 50% cut in its equity exposure but reducing the number of stocks from current 940 to 500 by February. Meanwhile, UTI-I is likely to get the mandate to manage the shares of the divested PSUs. On 15 January, the Centre bifurcates UTI by handing over the NAV-based UTI-II to SBI, PNB, BOB and LIC, with M Damodaran as the chief executive officer of UTI-II and the administrator of UTI-I.
The agreement for sale allows the sponsors to sell the asset management rights of the new company to a third party. The Centre also gives the sponsors a free hand in deciding the sale of equity of various companies held by the asset management company under various schemes. The Centre promises to compensate the sponsors for three years in respect of any liability, loss or damage for actions prior to 1 February.
February 2003
The Unit Trust of India has carved out UTI Mutual Fund which essentially comprises UTI-II containing all the NAV-based schemes. UTI Mutual Fund plans to double its assets under management from the current Rs 15,179 crore to Rs 30,000 crore in a year by marketing existing schemes and introducing new ones. To streamline its product portfolio, UTI MF plans to restructure its 47 schemes and merge those with similar investment objectives. It plans to float five-year tradeable bonds, like the US-64 bonds, for meeting the redemption pressure on other schemes and considers an aggressive marketing campaign for these bonds.
UTI-I has been renamed as a Specified Undertaking of the Unit Trust of India, which will manage US-64 and other assured return schemes with assets worth Rs 31,000 crore. The guaranteed returns package of US-64 is set to expire on 31 May 2003.
January 2003
US-64 contemplates a 50% cut in its equity exposure but reducing the number of stocks from current 940 to 500 by February. Meanwhile, UTI-I is likely to get the mandate to manage the shares of the divested PSUs. On 15 January, the Centre bifurcates UTI by handing over the NAV-based UTI-II to SBI, PNB, BOB and LIC, with M Damodaran as the chief executive officer of UTI-II and the administrator of UTI-I.
The agreement for sale allows the sponsors to sell the asset management rights of the new company to a third party. The Centre also gives the sponsors a free hand in deciding the sale of equity of various companies held by the asset management company under various schemes. The Centre promises to compensate the sponsors for three years in respect of any liability, loss or damage for actions prior to 1 February.
28 January 2003
UTI decides that the units of Unit Scheme 64 issued on or before 30 June 2001 either held by the original unitholders or by the buyers of these units in the secondary market after reopening of trading on 28 January 2003 will be treated as tax-free, tradeable bonds with effect from 1 June 2003.
The bonds will mature on 31 May 2008. The bondholders will be paid interest on their holding at such rate and frequency (i.e. half-yearly, yearly) which will be announced later.
Secondary market trading in US 64 commences from 28 January 2003. The buyers of US-64 units from Secondary Market for Category "A" units (Units held on 30 June 2001 upto 5000 units per investor) i.e. units repurchaseable at Rs.12 and Category "B" units (Units held on 30 June 2001 in excess of 5000 units), i.e. units repurchaseable at Rs.10 on 31 May 2003 and thereafter, would be effectively purchasing the units, which will be eligible for conversion into tax-free bonds as on 31 May/1 June 2003.
The buyers of units under Category C i.e. units bought from secondary market during 15 November 2002 to 22 January 2003 will continue to be traded and repurchaseable at NAV based price. The investors who bought the units from the secondary market before 15 November has been transferred to Unit Scheme 2002, which is an open-ended NAV-based scheme.
The existing Special Price Repurchase / NAV-based price repurchase facility for unitholders in below 5000 units/above 5000 units categories respectively, will continue.
1 February 2003
UTI is split into two with effect from 1 February 2003, UTI I (UTI Trustee Company (P) Ltd) and UTI II (UTI Asset Management Company (P) Ltd.) UTI II will be known as UTI Mutual Fund.
In the light of an agreement signed by the Government of India with the four sponsoring institutions viz. State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India, on 15 January 2003, UTI Trustee Company (P) Ltd. and UTI Asset Management Company (P) Ltd. were formed. UTI Mutual Fund has come into existence with effect from 1 February 2003. UTI Asset Management Co. (P) Ltd. will manage 47 NAV based, SEBI compliant schemes including 5 offshore funds with a corpus of over Rs. 15,000 crore. UTI Trustee Company (P) Ltd will manage 22 schemes which includes US-64 and all the assured returns schemes.
The composition of the UTI Trustee Co. (P) Ltd. and the UTI Asset Management Co. (P) Ltd. is as follows:
UTI Trustee Co. (P) Ltd.
- Shri C Ramachandran, Former Secretary (Expenditure), Ministry of Finance, GoI
- Shri M P Radhakrishnan, Former Chairman, SBI
- Dr.(Mrs.) Kanta Ahuja, Former Vice-Chancellor, University of Rajasthan
- Shri I D Agarwal, Chairman, OTCEI
- Shri Pritam Singh, Director, In-charge, IIM, Lucknow
C Ramachandran is appointed as Chairman of UTI Trustee Co. (P) Ltd.
UTI Asset Management Co. (P) Ltd.
- Shri M Damodaran, Chairman, UTI
- Shri S H Bhojani, Partner, Amarchand Mangaldas & Suresh A Shroff & Co. Advocates & Solicitors
- Shri J S Mathur, Former Dy. Comptroller and Auditor General of India
- Shri B D Sumitra, DMD and Chief Financial Officer, SBI
M. Damodaran is appointed as Chairman and Managing Director of UTI Asset Management Co. (P) Ltd.
19 February 2003
Finance Minister Jaswant Singh denies any move to privatise US-64 and UTI -II. He also informs Rajya Sabha that the government stood by its commitment regarding US-64. Promises strong action against those found guilty in the US-64 scam.
The finance minister states that an expected amount of Rs 6,000 crore will required for the redemption. A sum of Rs 300 crore (Rs 3 billion) was paid during 2001-02 for redeeming US-64 and it stood at Rs 938 crore (Rs 9.38 billion) during the current financial year, he said.
For redemption of the assured return schemes, a guarantee money of Rs 1,000 crore (Rs 10 billion) has been provided along with Rs 450 crore "comfort level" funds provided by banks and financial institutions, the minister said.
Singh said the Unit 2 was still the country's biggest mutual fund, which is SEBI-regulated, and the "best possible talent" would be found from the market to run it. The present chairman of UTI was doing a good job and there was no question of privatising the US-64, he added.
Strongly denying any move to divide the UTI into four parts, the minister said the government had decided to bifurcate it to "ring fence" the liabilities on it with regard to US-64, assured return schemes of the UTI and to distance itself from the mutual fund activities of the UTI which are regulated by SEBI.
28 February 2003
UTI Mutual Fund has decides to trim the number of companies in the portfolios of all its equity schemes. There will now be a maximum of 60 companies per scheme.
In order to be more focused, the countrys largest mutual fund has set out its objective of having a maximum of 20 companies for an equity-dedicated scheme having a corpus size up to Rs 100 crore.
For schemes having assets under management (AUM) of over Rs 100 crore and less than Rs 400 crore, a maximum of 30-40 companies will be the norm, while in schemes with a corpus size over Rs 400 crore a maximum of 50-60 companies will comprise the portfolio.
The downsizing in terms of number of companies in a scheme is not only confined to UTI MF but also in select schemes of UTI-I (Specified Undertaking of the Unit Trust of India), the assured returns portion carved out of UTI.
6 March 2003
The government refrains the four sponsors of UTI Mutual Fund viz. LIC, SBI, Canara Bank, Bank of Baroda and Punjab National Bank from utilising insider or privileged information got either from the new mutual fund or their parent banks and institutions to their advantage.
For this purpose guidelines are being framed by the finance ministry in consultation with SEBI and JPC which investigated '01' securities scam.
According to senior government officials, two-thirds of the board representation in the UTI Mutual Fund will have to be from outside, consistent with the Sebi guidelines. The nominee of any of the four sponsors would also be expected not to participate in a decision involving investment in his bank's or institution's stocks.
The fund managers of UTI will handle schemes of UTI Mutual Fund or UTI-II. The new AMC also has the same investment manual adopted by UTI-I which charts out the delegatory powers to fund managers and the broad investment principles.
11 March 2003
US-64 investors to get option of tax-free 6.75% bonds from May
The government will offer to buy back the units of Unit Trust of India's flagship scheme US-64 in cash or give the investors an option to convert them into 5-year tax-free bonds bearing an interest rate of 6.75% from May this year.
According to the scheme worked out by the Finance Ministry, investors would have the option of exchanging US-64 units with government guaranteed five-year bonds bearing a tax-free interest rate of 6.75% with a face value of Rs 100 each. In case of odd lots of units worth less than Rs 100, the unit holders would be paid the amount in cash.
For corporate investors falling in the 35% tax bracket, the bonds would give an effective return of 10.52% cent while it would be 10.07% for high net-worth individuals. Small investors paying taxes at the rate of 10%, the yield from the bonds come to 7.5%.
The cash option is that all investors holding up to 5,000 units since June 2001 would be redeemed at Rs 11.80 a unit in March or Rs 12 a unit in May. Investors holding more than 5,000 units would get Rs 10 per unit for additional units in May 2003. Those investors, who do not opt for the cash option, would be offered bonds by default. They can, however, encash it within 31 May.
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