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Unit trust of india

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Unit trust of india

  1. 1. UNIT TRUST OF INDIAA Discussion on US - 64
  2. 2. INTRODUCTION1963: Established by an act of Parliament, setup, regulated and administered by Reserve Bank Of India.1964 launched first mutual fund scheme, Unit Scheme-1964 (US-64).1978 delinked from RBI and IDBI took the regulatory andadministrative control.
  3. 3. OBJECTIVETo stimulate and pool the savings of the middle and low income groups.To enable unit holders to share the benefits and prosperity of the rapidlygrowing industrialization in the country.To sell units among as many investors as possible.To invest the money raised from the sale of units and its own capital incorporate and industrial securities.To pay dividend to the unit holders
  4. 4. SCHEMESUTI has introduced two kinds of units in the market: Ordinary units (Face value of Rs. 10 each) Capital units (Face value of Rs. 100 each).The units are not traded on stock exchanges but they are liquid.UTI fixes repurchase prices of units and is always ready to buy themfrom investors.
  5. 5. OPEN ENDED UNIT SCHEMESUnit Scheme – 1964 (Flagship Scheme)Unit Scheme – 1971Unit scheme for charitable and religious trustsand societies,1981Capital Gain unit scheme, 1983Children’s gift growth fund unit scheme, 1992Housing unit scheme, 1992Senior citizen unit plan, 1993
  6. 6. CLOSE ENDED UNIT SCHEMESMonthly income unit schemes, issued in 1987, 1988, 1989.Growing income unit schemes, issued in 1987, 1989, 1990Deferred income unit schemes, issued in 1990, 1991, 1992Capital growth unit scheme, 1991, 1992
  7. 7. US-64 Unit Scheme-1964: First scheme introduced by UTI The fund’s initial capital of Rs 5 crore was contributed by RBI, Financial Institutions, LIC, SBI and other scheduled banks including few foreign banks open-ended scheme, promising an attractive income, ready liquidity and tax benefits In the first year, US-64 mobilized Rs 19 crore and offered a 6.1% dividend as compared to the prevailing bank deposit interest rates of 3.75 - 6% By October 2000, US-64 increased its capital base to Rs 15993 crore, spread over 2 crore unit holders all over the world
  8. 8. PHASE ONE30 June 1998UTI declares a dividend of 20% on US-641 July 1998UTI announces that reserves of US-64 have turned negative to the extent of Rs1,098 cr.4 October 1998UTI chairman P S Subramanyam declares his intention to sell equity holdings.19 October 1998Finance ministry advises UTI to step up repurchase price of US-64 units andmaintain its 20% dividend.2 November 1998Finance ministry sets up a five-member committee under the chairmanship ofHDFC chief Deepak Parekh
  9. 9. AIM OF THE DEEPAK PAREKHCOMMITTEE:To review the objectives, features and structure of US-64scheme in the context of its role in the mobilisation ofdomestic savings and investment in the capital market.To review the policies of US-64 scheme relating to pricingand income distribution, having regard to the profile ofexisting investors of the scheme.To review the policies and procedures about the portfoliocomposition of the scheme as well as the asset managementprocess.
  10. 10. PHASE TWO2 July 2001UTI declares a 10% dividend on US-64 and announces suspension ofsale and repurchase on the scheme for 6 months4 July 2001Heat from the finance ministry forces UTI chief P S Subramanyam toresign.11 July 2001SBI, Corporation Bank and other banks agree to provide a line of creditagainst collateral.13 July 2001Government’s rescue package for the bail-out to be restricted to Rs 10,000 perinvestor while UTI declares it requires an infusion of Rs 3,000 crore to cover theprincipal amount and a dividend of 10% declared by Subramanyam.
  11. 11. 14 July 2001M Damodaran, joint secretary in banking division of the financeministry, declared as the new UTI chief.15 July 2001Finance ministry rolls out a Rs 300-crore rescue packagewhich offers unitholders the opportunity to liquidate theirholdings and achieve capital appreciation through a step-uprepurchase till May 2003. Investors can offer up to 3,000 unitsfor repurchase between August 2001 and May 2003. Therepurchase price in August fixed at Rs 10 per unit to beincreased by 10 paise every month.19 July 2001UTI declares its intention to divest 25% of US-64s equity holding
  12. 12. VISION OF UTI CHIEF DAMODARAN25 JulyUTI chief M Damodaran maps out a four-pronged strategy torestore investor confidence: moving the government for infusion of funds, paring the total corpus of UTI, splitting US-64 into 2-3 schemes hiring professional fund managers.
  13. 13. MALEGAM COMMITTEE12 October 2001The Y H Malegam committee, set up in June 2000, recommends a strategicpartner for UTI.25 October 2001In its report on corporate repositioning, the Malegam Committee recommendsagainst any government role in UTI restructuring.27 October 2001Malegam Committee recommends that UTI should completely dispose of theequity investments in assured return schemes. The equity content in suchschemes is in the range of 15-20%.3 NovemberThe Malegam Committee report recommends RBI and LIC to convert theirholdings and form a sponsoring company.
  14. 14. FINALLY27 December 2001UTI decides to reduce the equity portion of US-64 from 61%to 55% and raise the debt proportion to 75% of total assets.28 December 2001First time in the history of US-64, UTI declares its provisionalportfolio to the general public.31 December 2001UTI declares the first NAV of US-64 at Rs 5.81, which is 44%lower than its repurchase price of Rs 10.5 for January 2001.
  15. 15. FLAWS IN FUNCTIONINGUTI sold investors the apple (of a balanced fund) as an orange (an income fund)positioned as an income schemeUTI never told its investors that the portfolio compositionThe steady decline in the dividend yield was never highlighted. The yield on Julyprice for 2000-01 of 7.4 per cent was close to the levels that prevailed 30 yearsago.
  16. 16. BIFURCATED STRUCTURESpecified Undertaking Of UTI controlled byGovernment of India and does not come underthe purview of Mutual Fund RegulationsUTI Mutual Fund Ltd. (sponsored bySBI, PNB,BoB & LIC) regitered under Sebi andfunctions under Mutual fund regulations.
  17. 17. UTI MUTUAL FUNDUTI Trustee Co. Pvt. Ltd. Appointed UTI Asset managementCo. Ltd. For managing the schemes of UTI mutual fund andschemes transffered from erstwhile Unit trust of India.UTI Asset Management Co. Ltd UTI International (offshore funds) UTI Ventures(venture funds) UTI Retirement Solutions (pension funds)

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