The Nature and the Causes of the UTI Crisis with particular references to US-64!
This year the UTI declared it’s lowest ever dividend of 10% in 21 years. The reason behind the present crisis is not of any immediate factor. For over a year of more US-64 and most of the scheme of the UTI have been under a cloud. Its investment decision, the managements conduct and its accountability have been rigorously debated since the stock market crashed in March 2001.
Why talk of year 2001 only, even in the year 1998-99 the Government of India bailed out the trust with Rs 3300 crore when the US-64 reserves turned negative. Anyhow, the present imbroglio is mainly due to mismanagement of funds by the trustee. They went on investing in old economy investments when technology media and telecoms stocks were cheap and rising.
UTI, finally bought these information, communication, entertainment shares, when those were sky high. Secondly, heavy investment in equity and less debt market brought disequilibrium in the ratio. Thirdly, the structure of US-64 schemes, unlike all other mutual funds is not based on entry or exit at or around net asset value. Lastly, UTI has always been used by all concerned, whether it is bureaucrats or industrialists or brokers for their benefit.
Suspension of sale and repurchase of US-64 for 6 months have left the common investors in a state of shock. The assurance by finance minister for probe and the dwindling scene present other doubts. Even the capital market friendly budget is unable to revive the whole scenario.
Given the magnitude of the scheme and its import on the mutual fund industry and the capital market, the government must move in swiftly to restore investor’s trust and confidence which has been badly mauled in one stroke. The remedy in the end lies in delinking UTI from government interference. An independent professionally managed UTI can go a long way in retaining public trust through transparent pricing of its schemes.