Opinion
-
Editorials
Re-infusing trust
A SERIES OF not flattering news concerning the Unit Trust of India's (UTI) flagship US 64 Scheme that began in July last year culminated in the announcement, for the first time ever, of its net asset value (NAV) by the end of the year. It was widely known that the NAV will be well below its face value (of Rs. 10). But the extent of discount has caused widespread dismay and according to some, with the NAV announcement, the low point in the UTI's recent operations has been reached. In July last year, the Trust suspended operations in the US 64 Scheme, a highly controversial move ostensibly intended to buy time for carrying out a major restructuring exercise. That move took everyone, including - improbable as it then seemed - the Finance Minister, by surprise. A wave of investor panic - no exit options were provided - was accompanied by some knee-jerk regulatory and Government action.
From then on, for the latter, it has been fire-fighting all the way. The Trust announced a scheme to buy back a limited number of units at a graded price starting from August last year and ending in May 2003. Very recently, that limit has been increased to 5,000 from the earlier 3,000. Other unit holders as well as the new investors will have to deal at the NAV, linked prices which the Trust will now announce periodically. Thus, the US 64 will have a two-tier structure - of an administered price, meant to bolster up to a point the faltering investor confidence, and a market determined price, in which it resembles most of the other dismally performing funds.
Even more importantly, under its new Chairman the Trust promised a drastic overhaul of all facets of its operations with the avowed intention of restoring investor confidence. Last year, two high-level committees provided the Trust with blueprints even while pinpointing deficiencies in its working. Though differing in some details, the two committees have recommended that the Trust be brought in line with the other newer asset management companies and the US 64 in line with other mutual fund schemes. Implicit in their recommendations is the need to impart greater professionalism to its fund managers, to bring the Trust under the capital market regulator, the SEBI, and to clearly delineate the role of the Government vis-a-vis the Trust. Needless to add, the last aspect, given the legacy of the UTI, has been the most sensitive.
Ultimately, it is both its Government character as well as its pioneering role that lend a sharp edge to any debate on the future of US 64. Originally conceived of as an investment vehicle that would channel middle class savings into the capital market, the Trust promised and actually paid steady and increasing returns. Created by an Act of Parliament, the Trust came to be viewed as having an implicit Government guarantee as to the safety of funds invested with it. On at least two occasions, the Government has stepped in with a generous infusion of funds, the last time in 1999 following the Deepak Parekh Committee's recommendations. This time too, the Government is committed to bridging the gap between the NAV and its repurchase price. On current reckoning that would cost more than Rs. 5,000 crores. Any upward movement of the stock indices would, however, reduce the dependence on the Government. The Trust has also promised to offer a variety of options such as income and growth to investors of the US 64, and to restructure its large corpus to reflect its investment objectives. The idea clearly is to pitch for more investment in the country's oldest mutual fund. It is hoped that the current restructuring exercises will have salutary messages that will nullify the negative record of the Trust.
Send this article to Friends by
E-Mail
Opinion
|
