Themes: Corporate scams/ Controversies
Period : 1990 - 2000
Organization : UTI India
Pub Date : 2002
Countries : India
Industry : Financial Services
It was an open-ended scheme4, promising an attractive income, ready liquidity and tax benefits. In the first year of its launch, US-64 mobilized Rs 19 crore and offered a 6.1% dividend as compared to the prevailing bank deposit interest rates of 3.75 - 6%. This impressed the average Indian investor who until then considered bank deposits to be the safest and best investment opportunity. By October 2000, US-64 increased its capital base to Rs 15993 crore, spread over 2 crore unit holders all over the world.
|
|
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 practise of not declaring US-64's NAV in the initial years was justified as the scheme was formulated to attract the small investors into capital markets. The declaration of NAV at that time would not have been advisable, as heavy stock market fluctuations resulting in low NAV figures would have discouraged the investors. This seemed to have led to a mistaken feeling that the UTI and US-64 were somehow immune to the volatility of the Sensex.
Following the heavy redemption wave, it soon became public knowledge that the erosion of US-64's reserves was gradual. Internal audit reports of SEBI regarding US-64 established that there were serious flaws in the management of funds. Till the 1980s, the equity component of US-64 never went beyond 30%. UTI acquired public sector unit (PSU) stocks under the 1992-97 disinvestment program of the union government. Around Rs 6000-7000 crore was invested in scrips such as MTNL, ONGC, IOC, HPCL & SAIL.
4] An open-ended scheme's units can be bought from or sold back to the fund at any point of time. The NAV is declared daily, and the buying (subscription) and selling (redemption) price follows the NAV.