Last
week, we looked at the details of the scam in UTI's US-64 scheme and
also the reserves of different UTI schemes. This week, let us go through
the response from the public, the UTI notice on US-64 scheme, the
reform measures needed to revamp the functioning of UTI, enquiries
initiated to probe the scam and the way forward.
Public Confidence
On 1st August 2001, UTI announced a limited repurchase window for
small investors of UTI's US-64 Scheme. Special liquidity package for
up to 3000 units of small investors for repurchase of US 64 unit holders
was released listing repurchase price from August 2001 to May 2003.
This started with 3,865 applicants redeeming their units at a face
value of Rs 10. This involved Rs 56.39 lakh units of the scheme, which
has resulted in cash outflow of Rs. 5.64 crores. This has to be contrasted
against the cash outflow of Rs 4000 crores due to the redemption of
units by big corporate houses at a value of Rs 14.55 per unit in April
and June. This belied wide spread rumours that UTI is in crisis and
investors would resort to panic selling. These redemption requests
were quiet in line with the usual redemption during initial few days
of any month. The new UTI chairman Mr Damodaran said that in last
August there were 2,306 applicants redeeming 44.65 lakh units. The
general view is that public need not get panicky. If the investors
wait till July next year, they can expect capital appreciation and
tax-free dividend on US-64. The advice of economic experts and analysts
is to stay with US-64 scheme for next two years.
Press Notice
from UTI
UTI issued a press notice on 2nd August 2001 on its US-64 Scheme.
The notice says that 2000-2001 is one of the most difficult year for
Indian and global economy. The markets registered a vertical fall.
In India, interest rates of banks have fallen and that of the small
saving schemes have dropped by 2.5% over the last 18 months. The press
note also mentions that the temporary suspension of sale and repurchase
of US-64 up to 6 months is aimed at smoothing the transition from
administered pricing into NAV-based pricing in line with the recommendation
by experts/committees. The chairman of UTI, Mr Damodaran expects the
government of India to find out a suitable mechanism to assist UTI
in case the net asset value of US-64 goes below Rs 10. The Trust has
decided to convert the scheme from administered scheme to NAV-based
from 1st January 2002.
The Trust is also restructuring the US-64 Scheme to make it a well-diversified
and balanced fund. Providing an assured repurchase price up to 3000
units for a period of nearly two years safeguards the interest of
small investors. The market is expected to revive well before May
2003. The press note also says that there will be no dilution of NAV
as a result of providing assured exit price to small investors. Any
deficit between NAV and applicable repurchase price will be met and
funded through external resources such as Development Reserve Fund
(DRF).
UTI press notice also claims that it turned the negative reserves
arising as on 30th June 1998 into positive reserves within a year's
time. There was also a substantial addition to reserves after making
two annual tax-free income distribution higher than that offered by
other comparable investment instruments.
As far as US-64 Scheme goes dividend of 10% (on face value) is consistent
and reasonable for the last 37 years. The rate of dividend is market-related
and always in consonance with the prevailing interest rate scenario.
According to the Press release from UTI, due to the increasing monthly
repurchase price and the expected revival of economy and markets,
in the long run, the small investors would also gain by keeping their
faith in US-64. ....more
