The Unit Trust of India (UTI) was setup by the Government of India under a special act of the parliament in 1964. It continues to be India’s largest Mutual Fund with assets under management aggregating more than Rs. 50, 000 crores spread across 80-85 different schemes as at the end of June 2001.
While the intentions in creating the UTI are laudable considering that it was meant primarily as a vehicle for channelising the savings of the small investors of which it did a decently good job till a few years ago, we have, of late been exposed to a lot of skeletons which stumbled out of its hitherto closed cupboards.
Then again, one cannot directly blame the pampered powers-that-be who, for years were protected by a shroud of secrecy by the parliament. There was no such system as a public scrutiny of the accounts nor a periodical declaration of the assets and the portfolios of UTI with the result that all the millions of investors who trusted its name and went ahead with parking their lifetime savings have now been left high and dry. Why? All because there was no one to question what UTI ever did in the first place nor anyone to correct it as it repeatedly went on flouting all norms and regulations repeatedly.
The first signs of trouble in its flagship scheme, the US-64, surfaced in 1999. However, the Government was quick to intervene and bail it out with a generous grant of Rs. 300 crores. Not having learnt a lesson, the UTI appears to have comfortably gone to sleep and missed out on the tech boom in the stock markets in 1999-2000 only to land in a deeper hole early last year.
It must have been a terrible shock when it came out into the open that the UTI had done everything that it was not expected to in the first place. Apart from buying heavily into the K-10 index when the said stocks were clearly on their way down, the UTI also made some rather huge and questionable purchases in totally unknown and unlisted companies at a massive premium (Cyberspace Infosys). What is relevant at this juncture is not to question the basis on which these investments were made (because it is ultra-clear that there were none in the first place), what is more relevant is the question as to what the Board of Directors of UTI who comprise some of the top luminaries in India’s financial and business circles were doing all along? Was it not their honour-bound duty to ensure the smooth and efficient running of UTI?
A lot of finger-pointing was done in the aftermath of the suspension of repurchase of units by UTI in June last year with the Hon’ble Finance Minister claiming that they were kept in the dark all along about the precarious position of UTI!!! Imagine the head of the house himself saying that he was blissfully unaware of what was transpiring under his roof! Where have the virtues like accountability and professionalism by which the NDA government swears by gone?
There were some immediate control measures taken by the Government in only the way that it can. Its philosophy is simple - sack a few high profile people and keep the tabloids at bay, the issue will automatically die out on its own. That’s exactly what it did by sacking Mr. P. S. Subrahmanyam. But neither was he solely responsible for all that happened nor is replacing him going to help out all those poor small time investors who once considered a UTI-64 unit to be the most liquid instrument next only to holding cash.
Its high time that the Government did something to bring about some large-scale structural changes within the UTI. What is so special about the UTI that it should have a separate act of its own in the modern day context? Why cannot the UTI be converted into a publicly held Mutual Fund and be held accountable by the SEBI (another toothless regulator) just as the other Mutual Funds are? Was it not under the protection afforded by this very act that the UTI did everything from investing in the stock market in collusion with shady speculators to investing in large chunks of real estate all of which finally resulted in the current muck that it finds itself in? What did we get at the end of it all? The end result is there for everyone to see...the faith imposed in it by generations of investors has been blatantly betrayed!
Are things ever going to change in India?