The US-64 Controversy
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RESTORING THE TRUSTUTI realised that it had
become compulsory to restructure US-64's portfolio and review its asset
allocation policy. In October 1998, UTI constituted a committee under the
chairmanship of Deepak Parekh, chairman, HDFC bank, to review the working of
scheme and to recommend measures for bringing in more transparency and
accountability in working of the scheme.
US-64's portfolio restructuring however was not as easy as market watchers
deemed it to be. UTI could not freely offload the poor performing PSU stocks
bought under the GoI disinvestment program, due to the fear of massive price
erosions after such offloading. After much deliberation, a new scheme called
SUS-99 was launched.
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The scheme was formulated to help US-64 improve its
NAV by an amount, which was the difference between the book value and
the market value of those PSU holdings. The government bought the units
of SUS-99 at a face value of Rs 4810 crore. For the other PSU stocks
held prior to the disinvestment acquisitions, UTI decided to sell them
through negotiations to the highest bidder. UTI also began working on
the committee's recommendation to strengthen the capital base of the
scheme by infusing fresh funds of Rs 500 crore. This was to be on a
proportionate basis linked to the promoter's holding pattern in the
fund. |
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The inclusion of the growth stocks in the portfolio was
another step towards restoring US-64's image. Sen, Executive Director, UTI
said, “The US-64 equity portfolio has been revamped since June. During the
last nine months the new ones that have come to occupy a place among the Top
20 stocks from the (Satyam Computers, NIIT and Infosys) and FMCG (HLL,
SmithKline Beecham and Reckitt & Colman) sectors. US-64 has reduced its
weightage in the commodity stocks (Indian Rayon, GSFC, Tisco, ACC and
Hindalco.)”
To control the redemptions and to attract further investments, the income
distributed under US-64 was made tax-free for three years from 1999. To
strengthen the focus on small investors and to reduce the tilt towards
corporate investors, UTI decided that retail investors should be
concentrated upon and their number should be increased in the scheme.
UTI also decided to have five additional trustees on its board. To enable
trustees to assume higher degree of responsibility and exercise greater
authority UTI decided to give emphasis on a proper system of performance
evaluation of all schemes, marked-to-market valuation[5] of assets and
evaluation of performance benchmarked to a market index. The management of
US-64 was entrusted to an independent fund management group headed by an
Executive Director. UTI made plans to ensure that full responsibility and
accountability was achieved with support of a strong research team. Two
independent sub-groups were formed to manage the equity and debt portion of
US-64. An independent equity research cell was formed to provide market
analysis and research reports.
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TABLE I HOW THINGS WERE SET RIGHT
DEAD END SCHEME?
QUESTIONS FOR DISCUSSION
EXHIBIT I UTI – OBJECTIVES & STRUCTURE
EXHIBIT II DIVIDENDS DECLARED BY US-64
ADDITIONAL READINGS & REFERENCES
[5] Value of assets is evaluated according to the market value not according
to the book value.
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