Unit Trust of India(U.T.I)

Summited by•Manish nasha•Nishant agw•Archana sing

What is the UTI ?

•The Unit Trust of India is the largest mutual fund in the country created in 1964through an act of parliament. •Mutual Funds are financial institutions that invest people’s money in various schemes, giving a ‘guaranteed’ return to the investor. •The UTI (of which the US-64 scheme is the largest) was set-up specifically to channel small savings of citizens into investments giving relatively large returns/interest.

What is the UTI ?

The US-64 scheme has 2 crore investors, the bulk of whom are small savers, retired people, widows and pensioners.

Besides the US-64 the UTI runs 87other schemes giving investors various options.

But the US-64 has been most popular, giving returns as high as 18% in 1993 and 94.

The UTI Scam was abt.

Former UTI chairman P S Subramanyam and two executive directors - M M Kapur and S K Basu - and a stockbroker Rakesh G Mehta, were arrested in connection with the 'UTI scam'.

UTI had purchased 40,000 shares of Cyberspace between September 25, 2000. when there were no buyers for the scrip. The market price was around Rs 830.

Genisis of UTI scamThe Unit Trust of India is the largest

mutual fund in the country created in 1964 through an act of parliament.

The UTI (of which the US-64 scheme is the largest) was set-up specifically to channel small savings of citizens into investments giving relatively large returns/interest.

giving returns as high as 18% in 1993 and 94.

Liberalization of the economy immediately led to the liberalization of the UTI.

In 1992 only 28% of its funds was in equity was changed from a 70% today.

The US-64 does not come under SEBI regulations, its investment details are kept secret (even depositors cannot know where their funds are being parked)

in 1998, the UTI crashed, and the new BJP-led government organized a large Rs. 3,500 crore bail-out to prevent default.

During this crisis the new chairman, P.S. Subramanyam, was appointed. Subramanyam was a direct appointee of Jayalalitha.

Subramanyam developed close links with the Prime Minister’s Office, and corporative big-wigs.

He was a key player in the Ketan Parekh scam.

Huge amount of UTI funds were channeled into the infamous K-10 list of Keten Parekh stock, such as Himachal Futuristic, Zee Telefilims, Global Tele, DSQ, etc.

In order to prop up the share of these stock UTI continuous to buy these shares even when their market value began to crash in mid-2000

examples on how UTI has operated

1) In August 2000, much after the software stocks had begun to crash, the UTI bought Rs. 34 crores worth of shares in Cyberspace Infosys Ltd at the huge price of Rs 930 per share.

2) UTI also invested in junk bonds like Pritish Nandy communications (Rs. 1.5 crores), Jain Studios(Rs.5 crores), Sanjay Khan’s Numero Uno International (Rs. 7.5 crores), Malavika Spindles(Rs. 188 crores) etc.

A. With knowledge that the UTI was in a state of collapse, the Chairman organized a high profile propaganda campaign promoting UTI.

B. Two month prior to the freezing of dealings in UTI shares, a gigantic sum of Rs. 4,141 crores was redeemed.

C. OF this Rs.4,000 crores (97%) were corporate investments.

D. They were re-purchased at the price of Rs. 14.20 per share (face value Rs.10) when in fact its actual value (NAV — net asset value) was not more than Rs. 8. As a result UTI’s small investors lost a further Rs. 1,300 crores to the big corporate.

On July 4, 2001 the board of UTI took the unprecedented step of freezing the purchase and sale of all US-64 UTI shares for six months.

Former UTI chairman PS Subramanyam and two executive director--- MM kapur and SK basu and stockholder Rakesh G mehta were arrested with the UTI scam.

GOVERNMENT INTERVENTION IN UTI SCAM

Both the Union government and the Unit Trust of India (UTI) have failed to take any action against tainted UTI officials, as well as against corporates exposed by the Tarapore committee way back in January 2002.

This is evident from the Action Taken Report (ATR) tabled before Parliament on May 10 about the JPC report regarding the 2001 stock scam.

The final JPC(Joint parliamentry committee) report had recommended an enquiry of the secondary market transactions done by UTI in shares of 89 companies identified by the Tarapore committee.

It had also recommended departmental action against UTI officials involved in Cyberspace scam.

Moreover, Tarapore panel had exposed the deals behind the US-64 crisis and how banks had privy information regarding the ill-health of the scheme

However, in terms of action taken against these findings, both the government and UTI have failed to finalise any proceedings against the accused other than referring a few cases to the Advisory Board on Banking, Commercial and Financial Frauds, a pre-investigative body under the finance ministry.

UTI chairman M Damodaran was unavailable for comment.

After the Tarapore committee report unearthed the dubious deals between UTI officials and leading corporates, UTI ordered an audit of the investment decisions taken in 19 firms. But no action has been taken against these companies or against the concerned UTI officials.

The UTI-1 administrator has informed the government that with reference to civil proceedings against ex- chairman PS Subramaniam and other former UTI officials, "UTI is seeking an external legal specialist and further action will be considered on their advice."

On UTI's role in the Calcutta Stock Exchange payment crisis, the government has directed SEBI to intervene in the matter, since UTI has failed to initiate any action against its former ED BG Daga, who has been indicted in the JPC report.

Sources said the regulator is expected to summon Daga for a hearing in this matter.

SEBI has also ordered an investigation to ascertain any broker nexus among Stock Holding Corporation (SHCL) officials.

As for the government, its reaction has been deplorable, to say the least.

Finance minister Yashwant Sinha is on record saying that he was not going to lose his sleep because of the US-64 scam. He can of course afford not to lose his sleep, especially because millions of small investors have already lost their sleep on his behalf --- after losing their life-time savings, their only cushion for the bad days.  

In the initial days of the scam, the government did virtually nothing except doling out empty assurances to the investors that everything will be okay in due course.

Moreover, to date, there seems to be no concrete evidence of a government intervention to redeem the life of these hapless investors.  

Equally deplorable is the ‘clarification’ given by Sinha that he was kept in dark over the US-64 issue.

The fact is that the day-to-day functioning of the banks and non-banking financial institutions is regularly monitored by a joint secretary in the finance ministry, and there is no reason to believe that Sinha was unaware of what was happening in the UTI.

Further, even if one takes a lenient view, grants Sinha the benefit of doubt and takes his ‘clarification’ at its face value, should not he own moral responsibility for what had been happening under his very nose, and resign forthwith?

On July 7, the UTI announced a repurchase price of Rs 10 per unit in a bid to console the investors and offset the criticism.

The least they had paid for these units in July 2000 was Rs 13.40 per unit, not to talk of those who had purchased units mid-year.

This means that these small investors will lose at least Rs 3.40 for each unit. Thus a person holding, say, 1,000 units will stand to lose Rs 3,400 on this count.

 

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