Financial Daily
from THE HINDU group of publications

Saturday, July 07, 2001



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Ashok Dasgupta

EVEN as the Government - in particular, the Finance Minister, Mr Yashwant Sinha, and his mandarins in North Block - and the management of Unit Trust of India (UTI) headed by its new acting Chairman, Mr K.G. Vassal, are striving hard to bail out the premi er financial institution from its unprecedented crisis, the fact remains that the package worked out within the next few days to rescue the small investors would still be a piece-meal solution.

While all options are being looked into, Mr Sinha has already categorically held out the assurance that at no cost would the small investors of US-64 - UTI's flagship scheme - be let down and all efforts would be made to protect their interests. Such sma ll investors number nearly 20 million and more and most of them are retired pensioners whose livelihood majorly depends on the returns from the US-64 scheme.

For this unfortunate lot, the freeze declared on US-64 on July 2 for six months by the UTI management may well have sounded the death-knell and, in the long run, lead to erosion of faith in such investment schemes. Obviously, this is one of the reasons w hy among the options being considered is the exit route facility to provide liquidity in the hands of US-64 holders.

And for this, while the State Bank of India (SBI) has already declared that it will continue to advance loans against the face value of the units, UTI is also, it is understood, prepared to borrow as much as Rs 1,500 crore from commercial banks to pay it s investors who intend to walk out of the scheme. That again, is a piece-meal solution, something like robbing Peter to pay Paul.

Ostensibly, the Government has no other option. For, on final count, it is the Government that has brought matters to such a head, as far as investors are concerned. In earlier years, the US-64 scheme was among the safest schemes available for investment as it was essentially a debt fund with total security and steady returns. There were other avenues too, such as post office savings which was attractive in terms of returns on investment.

For those who wanted higher returns, there were the equity-linked schemes which gave higher returns but at a risk. In search of higher returns, the UTI also invested US-64 funds into equities and though the stock market slumped, it continued to service i ts investors adequately. Now, it has come to a point that it cannot afford to do so any further and, to stem the chances of a run on its funds, the UTI declared a freeze for six months while also lowering the dividend to 10 per cent.

Alongside, the Government lowered interest rates whereby the returns on schemes such as post office savings and voluntary provident fund stood reduced to 9.5 per cent. In a way thus, it was the Government which forced millions of investors to channelise their savings to the stock market and equity-linked schemes. But here also, the investors have ended up burning their fingers.

Come to think of it, isn't the slump in the stock market connected to the ongoing economic and industrial slowdown? Had the industry been thriving, the stock market would also have been vibrant despite the Nasdaq gyrations and the US slowdown. If only th e Government had made enough efforts, by way of public investments in key infrastructure projects, the industry would have been on the way to recovery and this would also have been reflected in the markets and the equity-linked savings schemes.

But the powers-that-be always tend to cross the bridge - or is it the gorge - when it comes to it.

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