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UNIT TRUST OF INDIA
A Discussion on US - 64
INTRODUCTION


1963: Established by an act of Parliament, set
up, 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 and
administrative control.
OBJECTIVE

To stimulate and pool the savings of the middle and low income groups.

To enable unit holders to share the benefits and prosperity of the rapidly
growing 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 in
corporate and industrial securities.

To pay dividend to the unit holders
SCHEMES
UTI 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 them
from investors.
OPEN ENDED UNIT SCHEMES
Unit Scheme – 1964 (Flagship Scheme)

Unit Scheme – 1971

Unit scheme for charitable and religious trustsand societies,1981

Capital Gain unit scheme, 1983

Children’s gift growth fund unit scheme, 1992

Housing unit scheme, 1992

Senior citizen unit plan, 1993
CLOSE ENDED UNIT SCHEMES


Monthly income unit schemes, issued in 1987, 1988, 1989.

Growing income unit schemes, issued in 1987, 1989, 1990

Deferred income unit schemes, issued in 1990, 1991, 1992

Capital growth unit scheme, 1991, 1992
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
PHASE ONE


30 June 1998
UTI declares a dividend of 20% on US-64

1 July 1998
UTI announces that reserves of US-64 have turned negative to the extent of Rs
1,098 cr.

4 October 1998
UTI chairman P S Subramanyam declares his intention to sell equity holdings.

19 October 1998
Finance ministry advises UTI to step up repurchase price of US-64 units and
maintain its 20% dividend.

2 November 1998
Finance ministry sets up a five-member committee under the chairmanship of
HDFC chief Deepak Parekh
AIM OF THE DEEPAK PAREKH
COMMITTEE:
To review the objectives, features and structure of US-64
scheme in the context of its role in the mobilisation of
domestic savings and investment in the capital market.

To review the policies of US-64 scheme relating to pricing
and income distribution, having regard to the profile of
existing investors of the scheme.

To review the policies and procedures about the portfolio
composition of the scheme as well as the asset management
process.
PHASE TWO

2 July 2001
UTI declares a 10% dividend on US-64 and announces suspension of
sale and repurchase on the scheme for 6 months


4 July 2001
Heat from the finance ministry forces UTI chief P S Subramanyam to
resign.


11 July 2001
SBI, Corporation Bank and other banks agree to provide a line of credit
against collateral.

13 July 2001
Government’s rescue package for the bail-out to be restricted to Rs 10,000 per
investor while UTI declares it requires an infusion of Rs 3,000 crore to cover the
principal amount and a dividend of 10% declared by Subramanyam.
14 July 2001
M Damodaran, joint secretary in banking division of the finance
ministry, declared as the new UTI chief.


15 July 2001
Finance ministry rolls out a Rs 300-crore rescue package
which offers unitholders the opportunity to liquidate their
holdings and achieve capital appreciation through a step-up
repurchase till May 2003. Investors can offer up to 3,000 units
for repurchase between August 2001 and May 2003. The
repurchase price in August fixed at Rs 10 per unit to be
increased by 10 paise every month.



19 July 2001
UTI declares its intention to divest 25% of US-64's equity holding
VISION OF UTI CHIEF DAMODARAN


25 July
UTI chief M Damodaran maps out a four-pronged strategy to
restore 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.
MALEGAM COMMITTEE

12 October 2001
The Y H Malegam committee, set up in June 2000, recommends a strategic
partner for UTI.


25 October 2001
In its report on corporate repositioning, the Malegam Committee recommends
against any government role in UTI restructuring.

27 October 2001
Malegam Committee recommends that UTI should completely dispose of the
equity investments in assured return schemes. The equity content in such
schemes is in the range of 15-20%.

3 November
The Malegam Committee report recommends RBI and LIC to convert their
holdings and form a sponsoring company.
FINALLY



27 December 2001
UTI 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 2001
First time in the history of US-64, UTI declares its provisional
portfolio to the general public.

31 December 2001
UTI 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.
FLAWS IN FUNCTIONING

UTI sold investors the apple (of a balanced fund) as an orange (an income fund)



positioned as an income scheme



UTI never told its investors that the portfolio composition


The steady decline in the dividend yield was never highlighted. The yield on July
price for 2000-01 of 7.4 per cent was close to the levels that prevailed 30 years
ago.
BIFURCATED STRUCTURE


Specified Undertaking Of UTI controlled by
Government of India and does not come under
the purview of Mutual Fund Regulations

UTI Mutual Fund Ltd. (sponsored by
SBI, PNB,BoB & LIC) regitered under Sebi and
functions under Mutual fund regulations.
UTI MUTUAL FUND

UTI Trustee Co. Pvt. Ltd. Appointed UTI Asset management
Co. Ltd. For managing the schemes of UTI mutual fund and
schemes 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)
Unit trust of india

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Unit trust of india

  • 1. UNIT TRUST OF INDIA A Discussion on US - 64
  • 2. INTRODUCTION 1963: Established by an act of Parliament, set up, 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 and administrative control.
  • 3. OBJECTIVE To stimulate and pool the savings of the middle and low income groups. To enable unit holders to share the benefits and prosperity of the rapidly growing 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 in corporate and industrial securities. To pay dividend to the unit holders
  • 4. SCHEMES UTI 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 them from investors.
  • 5. OPEN ENDED UNIT SCHEMES Unit Scheme – 1964 (Flagship Scheme) Unit Scheme – 1971 Unit scheme for charitable and religious trustsand societies,1981 Capital Gain unit scheme, 1983 Children’s gift growth fund unit scheme, 1992 Housing unit scheme, 1992 Senior citizen unit plan, 1993
  • 6. CLOSE ENDED UNIT SCHEMES Monthly income unit schemes, issued in 1987, 1988, 1989. Growing income unit schemes, issued in 1987, 1989, 1990 Deferred income unit schemes, issued in 1990, 1991, 1992 Capital growth unit scheme, 1991, 1992
  • 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. PHASE ONE 30 June 1998 UTI declares a dividend of 20% on US-64 1 July 1998 UTI announces that reserves of US-64 have turned negative to the extent of Rs 1,098 cr. 4 October 1998 UTI chairman P S Subramanyam declares his intention to sell equity holdings. 19 October 1998 Finance ministry advises UTI to step up repurchase price of US-64 units and maintain its 20% dividend. 2 November 1998 Finance ministry sets up a five-member committee under the chairmanship of HDFC chief Deepak Parekh
  • 9. AIM OF THE DEEPAK PAREKH COMMITTEE: To review the objectives, features and structure of US-64 scheme in the context of its role in the mobilisation of domestic savings and investment in the capital market. To review the policies of US-64 scheme relating to pricing and income distribution, having regard to the profile of existing investors of the scheme. To review the policies and procedures about the portfolio composition of the scheme as well as the asset management process.
  • 10. PHASE TWO 2 July 2001 UTI declares a 10% dividend on US-64 and announces suspension of sale and repurchase on the scheme for 6 months 4 July 2001 Heat from the finance ministry forces UTI chief P S Subramanyam to resign. 11 July 2001 SBI, Corporation Bank and other banks agree to provide a line of credit against collateral. 13 July 2001 Government’s rescue package for the bail-out to be restricted to Rs 10,000 per investor while UTI declares it requires an infusion of Rs 3,000 crore to cover the principal amount and a dividend of 10% declared by Subramanyam.
  • 11. 14 July 2001 M Damodaran, joint secretary in banking division of the finance ministry, declared as the new UTI chief. 15 July 2001 Finance ministry rolls out a Rs 300-crore rescue package which offers unitholders the opportunity to liquidate their holdings and achieve capital appreciation through a step-up repurchase till May 2003. Investors can offer up to 3,000 units for repurchase between August 2001 and May 2003. The repurchase price in August fixed at Rs 10 per unit to be increased by 10 paise every month. 19 July 2001 UTI declares its intention to divest 25% of US-64's equity holding
  • 12. VISION OF UTI CHIEF DAMODARAN 25 July UTI chief M Damodaran maps out a four-pronged strategy to restore 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. MALEGAM COMMITTEE 12 October 2001 The Y H Malegam committee, set up in June 2000, recommends a strategic partner for UTI. 25 October 2001 In its report on corporate repositioning, the Malegam Committee recommends against any government role in UTI restructuring. 27 October 2001 Malegam Committee recommends that UTI should completely dispose of the equity investments in assured return schemes. The equity content in such schemes is in the range of 15-20%. 3 November The Malegam Committee report recommends RBI and LIC to convert their holdings and form a sponsoring company.
  • 14. FINALLY 27 December 2001 UTI 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 2001 First time in the history of US-64, UTI declares its provisional portfolio to the general public. 31 December 2001 UTI 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. FLAWS IN FUNCTIONING UTI sold investors the apple (of a balanced fund) as an orange (an income fund) positioned as an income scheme UTI never told its investors that the portfolio composition The steady decline in the dividend yield was never highlighted. The yield on July price for 2000-01 of 7.4 per cent was close to the levels that prevailed 30 years ago.
  • 16. BIFURCATED STRUCTURE Specified Undertaking Of UTI controlled by Government of India and does not come under the purview of Mutual Fund Regulations UTI Mutual Fund Ltd. (sponsored by SBI, PNB,BoB & LIC) regitered under Sebi and functions under Mutual fund regulations.
  • 17. UTI MUTUAL FUND UTI Trustee Co. Pvt. Ltd. Appointed UTI Asset management Co. Ltd. For managing the schemes of UTI mutual fund and schemes 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)