“The comprehensive package cleared by the government shows its commitment to stand by the assurances given by UTI to the investors,” said chairman M. Damodaran.
US-64 tax breaks
The government will also consider certain tax concessions on US-64 with a view to providing an incentive to unit holders to remain in the scheme, Singh said. The tax concessions could be on the dividends and capital gains.
The government is now making US-64 open-ended so that it is not necessary for unit holders to redeem all the units in May 2003 when it will fetch Rs 12 per unit up to 5000 units and Rs 10 per unit beyond 5,000 units under the administered price repurchase scheme that was launched in August 2001.
The investors will be able to continue to hold the units beyond May 2003 if they so desire and the government will honour the commitment of Rs 12 per unit up to 5,000 units and Rs 10 per unit beyond 5,000 units whenever they come for redemption.
At the same time, the interest on the assured return schemes will be reset lower wherever there is an opportunity to do so.
UTI-II will for the time being be managed by a professional chairman and a board of trustees. Eventually, it will be divested.
The government's decision is designed to send a message of reassurance to the 20 million investors in the mutual fund who were stunned in July 2001 when UTI decided to suspend sales and repurchase in US-64 for six months after it found itself in a deep financial mess brought on by a stock market crash in February that year.
The cash outgo as a result of the US-64 redemption will be around Rs 1,000 crore for which money has been apportioned.
Finance secretary S. Narayan said the remaining Rs 5,018 crore liability, which government would have to bear, will be due from next year onwards.
This would be met through an issue of bonds, much like the way the government tackled the rising oil pool deficit in the past.
The value of UTI's assets as on June 30 stood at Rs 42,000 crore, of which Rs 17,784 crore was the market value of the assets in NAV-based schemes and remaining Rs 24,215 crore was on account of US-64 and assured return schemes, Narayan said
The Rs 17,784 crore NAV-based assets will be transferred to UTI-II which will be a “working and healthy” mutual fund managed by a professional who will be appointed from outside at a market salary, said Narayan.
The remaining Rs 24,215 crore will be with UTI-I which will continue to exist till the last investor in US-64 fixed return and other assured return schemes exits from them.
Narayan said the US-64 fixed return scheme will remain frozen and the investors will be allowed to sell back to UTI at the assured rate.The NAV-based US-64 scheme will continue and be transferred to UTI-II, he said.