Nilacharal

Unit Trust of India (UTI) is the largest mutual fund and function sunder the provisions of UTI Act, 1963. Its flagship scheme US-64 (Unit Scheme-64) started in 1964 and over the past 37 years it has mobilized more than Rs 58,000 crores of investment and honoured repurchase of around Rs 41,000 crores. All investments in the mutual funds and securities are subject to the market risks and the Net Asset Value (NAV) of schemes may go up or down depending upon factors and forces affecting the securities market. The usual disclaimer for any such schemes form the Fund Manager would be that the past performance is not a guarantee of future results. for meaningful purposes.

US-64 is a Savings Scheme and has been rewarding its 1.9 crore unit holding accounts regularly. Of course, US-64 is also not fully insulated from the fluctuations in the economy and stock market.

Scam

In the last one-month, there are hectic debates all over the country on the reasons behind the mismanagement of US-64 scheme. The monsoon session of the Parliament is more or less hijacked by this issue. The opposition demanded a JPC probe and the resignation of the Finance Minister Yashwanth Sinha. The government is blamed for its failure to take timely action to prevent the fiasco. The former Chairman of UTI Mr PS Subramanyam was sacked and taken into custody. George Fernandes dragged Tamilnadu Chief Minister Ms Jayalalithaa's name into this controversial scam by alleging that she only recommended Mr Subramanyam for this coveted post. UTI announced a freeze on the sale and repurchase of US-64 on July 2, 2001. The parliament plunged into heated arguments and turmoil. The press covered the history of this scheme. After Musharraf's visit, the nation hooked onto a common concern and this time it is about the scam in US-64, the flagship scheme of UTI.

What is this whole scam about? Let us understand this first before we go into the demands from different sections. UTI is in the business of making money for its unit holders through judicious investment in stock market instruments that it did badly according to analysts. US-64's troubles are to a large extent attributable to its excessive belief in technology stocks (Cyberspace stocks). Apart form investing in stock market, it also offers loans and the interest on them is its earnings on those schemes.

US-64 scheme has traditionally paid high returns to its investors while deploying its large corpus disproportionately in equities. The stock exchanges in India are volatile and enjoyed the dubious distinction of having a high degree of "Speculation Index" of 29%, only a shade lower then 33% of Nasdaq. Diversion of funds to stock markets for earning "super Profits" is one of the ways adopted by every fund manager in order to multiply the money invested by people. Totally being a conservatist and using the funds only as debt instruments would not yield profits and it is also not in the interest of the investors. However, the question debated is whether the UTI made judicious and cautious investments in stock market. Last year, the technology stocks miserably let down the fund managers. Even the widely touted private sector balanced funds had lost more than the UTI last year. UTI is faulted more because of its opaque structure.

UTI is alleged that it did not implement the Deepak Parek's report that was submitted almost 3 years back. This report advised UTI to reduce its exposure in the stock market. It had cautioned the UTI to bring down its investment in stock market from more than 66% to 40% of its total investment. However, the UTI violated the recommendations and continue to place the funds in equity market rather than balancing them through the use of funds as debt instruments. The current investment in stock market stands at 74% of UTI's total investment. Also, it is alleged that out of 1426 companies UTI has invested in only 81 have shown appreciation and 654 are non-traceable or not tradable. The pattern of investments in stock market clearly shows that UTI and other financial institutions developed under political pressure and personal gains. An alleged nexus with unscrupulous brokers can not be ruled out.

Shiv Sena member Sanjay Nirupam on 30 July, 2001 alleged in the Parliament that three telephone calls were made by former UTI chairman P S Subramanyam from Mumbai to Delhi from July 17 to July 21, two of which, he said were traced to the Prime Minister's Office (PMO). He went on and alleged that one of those calls was made to a person in PMO who is now in the Planning Commission. The Congress member P R Dasmunshi quoted the media reports in the Parliament on the telephone calls made by the PM's foster son-in-law to the sacked UTI chairman. Sanjay Nirupam also alleged that the Finance secretary had telephonedThe major allegation against UTI is its private placement in CyberSpace Technologies. This placement was allegedly made by UTI after these telephone calls to the tune of Rs 32 crores. The important point to be noted here is that the research wing of UTI has opposed the buying of shares from Cyber Space Technologies. Not only that, UTI has issued a warning notice to this company questioning its strength to ask for such investments from UTI. It is to be noted that the Parliament had warned the government early this year over the UTI's involvement in multi-crore stock scam that occurred two days after the presentation of the Union budget. It is deplorable that the government failed to take timely and preventive steps. The accused chairman of UTI Subramanyam claims that this deal was made with the knowledge of the Finance Minister. the sacked UTI chairman just an hour before the presentation of this year's Union budget to Parliament on February 28. ....more