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Friday, October 19, 2001



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UTI restructuring proposed with sponsoring co, strategic investor

Shaji Vikraman

NEW DELHI, Oct. 18

THE Corporate Positioning Committee for the Unit Trust of India, headed by Mr Y.H. Malegam, has recommended restructuring of the trust with a sponsoring company, capitalised at Rs 550 crore, and the setting up of an asset management company (AMC) with a capital base of Rs 1,000 crore.

It has also suggested that a strategic investor be offered 40 per cent in the sponsoring company with the rest of the capital to be held by the initial contributors to the UTI's capital such as financial institutions and a few state-owned banks.

The UTI Act, 1963, should also be repealed, the committee has said, in a clear pointer to the likely transformation of the trust into a corporatised entity or into a mutual fund operating like any other floated by the private sector.

The Malegam committee's report has said that UTI should follow the SEBI norms for all mutual funds, which envisages the setting up of a sponsor company, a trust company to carry out trusteeship functions and an AMC for running the business of a mutual fu nd.

It has recommended the setting up of one AMC for all the schemes now being operated by UTI.

For long, the UTI management has resisted the setting up of an AMC by saying that the UTI Act did not require the promotion of an AMC and also because of the special characteristics of the mutual fund.

Significantly, the committee has mentioned in its report that at the end of the restructuring exercise, there should not be any residual responsibility on the Union Government. In other words, it has suggested that the revamp should result in UTI operati ng like any other private mutual fund, without seeking to look up to the Government for support in times of a crisis.

The recommendation is that there should be a clear de-linking of the investment institution from the Government which infused Rs 3,300 crore in the form of the Special Unit Scheme (SUS-99) to bail out UTI in 1999. Faced with the prospect of virtually wri ting off a substantial portion of this assistance, the report talks of the Government being insulated from bearing any burden of repayment on behalf of UTI in the future.

The Malegam committee was appointed in July 2000 by the UTI's board of trustees to review the recommendations of the Deepak Parekh Committee and to recommend follow-up action plans to enable UTI to fully meet with the mutual fund regulations of SEBI and enhancing the competitive positioning of UTI. The last bit was generally perceived as a politely couched euphemism for chalking out a blueprint for converting the UTI into a professionally-run mutual fund.

Interestingly, the Malegam committee report has been passed on to the Joint Parliamentary Committee (JPC) probing the March 2001 stock scam, without it even being discussed by the UTI's board of trustees. Neither has it been vetted by the Finance Ministr y as the UTI board is yet to forward the report to the Ministry for its views.

The Finance Ministry has its nominee now -- Dr J. Bhagwati, Joint Secretary (Capital Markets and ECB) -- on the board of trustees of UTI.

Related links:
UTI revamp: The road to nowhere?
Experts' group to advise UTI on US-64 revamp

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