From THE HINDU group of publications
Sunday, July 08, 2001


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UTI: `Adventure in small savings'

THE Finance Minister, Mr T. T. Krishnamachari, replying to the general debate on the Bill, expressed confidence that the Trust would be able to get a contribution of even more than Rs 100 crore from the people for investment and it would benefit the community at large.

*The Finance Minister declined to prescribe any limit for the investments which could be made in the Trust. ``I give an assurance here and now'', he said, ``that it is impossible for any group or vested interest to control this institution''. Since investments in the Trust would not give ``money power'', he was sure vested interests would not be interested in the institution. About suggestions for free convertibility of trust shares, the Finance Minister said: ``We shall endeavour as far as possible that Government institutions, at any rate like the State Bank, will be able if necessary, to buy it on behalf of the Unit Trust if somebody wants to sell it''.

*Mr Krishnamachari also expressed the opinion that the investments in the Trust might yield 8-10 per cent returns.

*The task of popularising the Trust would be taken up as a part of the Government's savings drive. The National Savings movement would bear a part of the burden of publicity.

*The basic objective in establishing the Unit Trust of India was to mobilise the savings of the small sector.

*The UTI is to encourage saving and investment and participation in the income, profits and gains accruing to it (the corporation) from the acquisition holding management and disposal of securities.

*The Trust will be an organisation in the public sector, sponsored and supported mainly by the Reserve Bank of India, Life Insurance Corporation and State Bank of India and its subsidiaries.

*Although these organisations and the other contributories to the initial fund of the Trust will give to it such assistance as may be necessary in the first few years, the organisation will be run solely in the interests of the unit-holders.

*The Trust provided an opportunity for the middle and lower income groups to acquire without much difficulty property in the form of shares, the base of which was something which would not erode ``but will appreciate in value as years go by''.

*The unit-holders would be entitled every year to not less than 90 per cent of the net income attributable to the amounts invested by them in the form of units in the Trust.

*The Unit Trust of India is proposed to be established with an initial capital of Rs 5 crore. It will encourage saving by providing for various classes of investors the facility of investing their money in the Trust's units.

*The Trust will invest the initial capital and the capital obtained by the sale of units in shares and other securities. It is expected that the risk of losses or of depreciation on account of the investments will be reduced or eliminated as a result of the proposed arrangement.

*The Trust would also be in a position to contribute through its operations to the growth and diversification of the country's economy.

*It would be open to any person or institution to purchase the units offered by the Trust. But, he added, the Trust was intended to cater mainly to the needs of the individual investors and even among them as far as the maximum face value of a unit is limited by the Bill to Rs. 100. ``This, we hope, will make it possible for a large and growing number of persons to avail themselves of the facilities which the trust is in a position to offer''. The Trust should cater to the needs of such individual investors, the Minister said that certain exemptions from the normal provisions of income tax law had been given. ``These tax exemptions will not be available to investors who are not individuals or to individuals themselves if their holdings of units are in excess of certain reasonable limits.

*The objects which Government had in view in granting these exemptions were primarily to provide an additional incentive to save amount for investment in the Trust, to make it easier for the income and to facilitate generally the Trust to receive and distribute its the dispersal and distribution of corporate shares among various persons.

*The government felt that a statutory Corporation was the best method of achieving the objectives it had in mind. ``In the conditions which now prevail in our country, when there may not be so much business for a number of competing organisations and when it is also not clear that the operations of private unit trusts if established, will not pass into the hands of managing agency houses and groups, I think Government will be well advised in avoiding the risk and costly experiment of creating a number of weak organisations and in trying to exercise over them only such control as can be provided for any general law''.

*It would be almost impossible to provide to any private organisation the tax concessions that had been incorporated.

*The Minister said that with the very large investment programme before the country, the size of which increased with every new plan, the question of mobilisation of savings and coupling it with the security aspect was very necessary. In this connection, he said that the position in regard to national savings schemes in the current year was ``encouraging''.

In the first seven months of the year, the net receipts under small savings had been Rs 52 crores as against Rs 28 crores for the corresponding period last year but even this did not touch the fringe of the problem. There was undoubtedly a ``much larger'' capacity for saving amongst the community and to produce any results in the shape of sizable amounts as savings made available for investment, the middle and lower income groups had necessarily to be approached rather than the comparatively small number of affluent people. The Unit Trust will perform this function.

*The head office of the Trust will be at Bombay, but provision has been made in the Bill for the transfer of the head office to any other place if it is later found convenient and also for the establishment of branch offices or agencies.

*To achieve the purpose for which the Trust was intended, he said the Reserve Bank was prepared at the appropriate time to take all steps necessary to popularise the method of investment. He characterised the Trust as an ``adventure in small savings'' and expressed confidence in its successful outcome.

(Excerpts from the views expressed by T. T. Krishnamachari, the then Union Finance Minister, in the Lok Sabha on December 3-4, 1963 in a debate on the Bill to establish the Unit Trust of India.)

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