The Telegraph
Since 1st March, 1999
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Govt relies on own wisdom to bail out UTI

Mumbai, Aug. 31: The Rs 14,561-crore bailout package announced by the government for Unit Trust of India (UTI) today seems to have given a go by to the structural changes recommended by the three expert panels that were set up to suggest ways to restructure the troubled mutual fund major.

Way back in 1998, P.S. Subramanyam, then chairman of UTI, set up an expert committee headed by HDFC chairman Deepak Parekh to look into the woes of the mutual fund major and suggest remedies.

Parekh’s committee was followed by another panel which was set up in July 2000 with tax expert Y.H. Malegam at the helm.

While the recommendations of these two committees gathered dust, yet another committee was set up under the chairmanship of Reserve Bank deputy governor S.S. Tarapore.

All the three panels had suggested that UTI should be restructured along the guidelines set by the Securities and Exchange Board of India (Sebi) for mutual funds. They suggested that the mutual fund major should have a three-tier structure—a sponsoring company, a trustee company and an asset management company. While the Malegam committee had categorically recommended clear delinking of the investment institution from the government, the Tarapore committee had suggested three asset management companies for UTI—one for US-64, another for income schemes and the third one for growth funds.

But the government steered clear of all these proposals and brought US-64 and other assured return schemes under its own control while putting the net asset value based schemes under UTI-II.

Speaking to The Telegraph, Tarapore said, “prima facie the government plan makes eminent sense.” On being asked why several recommendations made by his panel and other committees were not incorporated by the ministry in its bailout plan, Tarapore said, “it is not necessary for the committees to expect 100 per cent of their recommendations to be accepted.”

According to Tarapore, many of their recommendations and suggestions made by the other by committees have already been accepted by UTI. For example, his committee had suggested a format to prevent malafide commercial judgement in making investment decisions which had already been adopted by UTI. Further, his committee had recommended that inter-scheme transfers, which were a bane, should be avoided at all costs and that was also accepted by the fund.

Reacting to the government move, UTI chairman M. Damodaran said, “The comprehensive package cleared by the government shows its commitment to stand by the assurances given by UTI to the investors.”

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