The US-64 Controversy
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DEAD END SCHEME?Though UTI started announcing
the dividends according to the market conditions, this was not received well
by the investors. They felt that though the dividend was tax-free, it was
not appealing as most of the investors were senior citizens and they did not
come under the tax bracket.
The statement in media by UTI chairman that trust would try to attract the
corporate investors into the scheme was against the recommendation by the
committee, which had adviced the trust to attract the retail investors into
the scheme. This led to doubts about UTI's commitment towards the revival of
the scheme.
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However, led by improving NAV figures and
image-building exercises on UTI's part, by 2000, US-64 was again termed
as one of the best investment avenues by analysts and market
researchers. UTI had become more proactive in fund management with its
scrips rising in value, restoring the confidence of the small investor
in the scheme. The National Council of Applied Economic Research (NCAER)
and SEBI surveys mentioned that US-64 was once again perceived as a safe
investment by the middle class income groups. |
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However, the euphoria seemed to be short lived as in 2001,
US-64 was involved in yet another scam due to its investments in the K-10
stocks[7] . Talks of a drastically low NAV, inflated prices, increasing
redemption and GoI bailouts appeared once again in the media. An Economic
Times report claimed that there was a difference of over Rs 6000 crore
between the NAV and the sale prices. Doubts were raised as to US-64 being an
inherently weak scheme, which coupled with its mismanagement, had led to its
downfall once again.
This however, was yet another story.
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. Analyse the steps taken by UTI to restore investor confidence in US-64.
Comment briefly on the efficacy of these steps.
3. As a market analyst, would you term US-64 a safe mode of investment?
Justify your stand with reasons.
4. US-64 should have been NAV driven from the very beginning like other
mutual funds. Comment.
EXHIBIT I UTI – OBJECTIVES & STRUCTURE
EXHIBIT II DIVIDENDS DECLARED BY US-64
ADDITIONAL READINGS & REFERENCES
[7] As a result of the Bull Run over ICE (Infotech, Communications and
Entertainment) stocks allegedly caused by noted bull Ketan Parekh, the stock
markets zoomed in 2000-01. UTI allegedly invested in these stocks when other
funds were offloading. Media reports claimed that this was partly due to
Subramanyam's close ties with Parekh. In the subsequent market crash, these
stocks declined substantially, eroding the US-64 NAV.
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