The US-64 Controversy*



Case Code : CLBS020
Publication date : 2004
Subject : Business Strategy
Industry : Mutual Fund
Length : 03 Pages
Price : Rs. 50

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Key words:

Depleting funds, redemptions, liquidity crisis, capital markets, disinvestment, acquisitions

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The caselet provides insight into the problems faced by the Indian mutual fund major UTIís flagship scheme US-64. It discusses in detail the problems that led to the fundís poor performance and steps taken by UTI to restore the investor confidence and the efficacy of these steps.


 Ľ The reasons behind the US-64 controversy and its implication on the stock markets.

 Ľ The importance of portfolio management for a mutual fund.


In 1998, investors of Unit Trust of Indiaís (UTI) Unit Scheme-1964 (US-64) were shaken by media reports claiming that things were seriously wrong with the mutual fund major.

For the first time in its 32 years of existence, US-64 faced depleting funds and redemptions exceeding the sales. Between July 1995 and March 1996, funds declined by Rs. 3,104 crore. Analysts remarked that the depleting corpus coupled with the redemptions could soon result in a liquidity crisis.
Unlike the usual practice for mutual funds, UTI never declared the NAV of US-64 - only the purchase and sale prices for the units were announced. Analysts remarked that the practice of not declaring US-64ís NAV in the initial years was justified as the scheme was formulated to attract the small investors into capital markets....

Questions for Discussion:

1. Explain in detail the reasons behind the problems faced by US-64 in the mid 1990s. Were these problems the sole responsibility of UTI? Give reasons to support your answer.

2. Analyze the steps taken by UTI to restore investor confidence in US-64. Comment briefly on the efficacy of these steps.