42 per cent of UTI to be privatised

Apart from announcing a Rs 14,561 crore bailout package for the beleaguered UTI, and ending the anxiety of its 15 million or so investors, t...

Apart from announcing a Rs 14,561 crore bailout package for the beleaguered UTI, and ending the anxiety of its 15 million or so investors, the government plans to split UTI into two parts, one of which is to be privatised.

UTI-2, the part which is to be privatised, comprises all of UTI’s schemes which for which there are no guarantees, on either the return or on the principal being protected—currently, these schemes manage a portfolio of Rs 17,784 crore, or an amount that’s a little over 42 per cent of UTI’s total portfolio size of Rs 42,000 crore. No time frame has been announced as yet for the privatisation.

Bailout made easy
As an investor in existing UTI schemes, does it really matter to me if my money is now with UTI-I? Should I now say ‘enough is enough’ and mop my funds and bid good bye to UTI? No. Stay put and consider the most profitable way out now from these funds. Broadly, UTI-1 is in two parts has US-64 and MIPs. For US-64: With government’s bailout, of a guaranteed repurchase price, the action plan for an investor is rather straightforward. For unit holdings up to 5,000 units, it makes sense to stay put in the fund for sometime, as your downside is protected with assured repurchase price. You can sell only 5,000 units back to UTI at Rs 11.20 in September 2002. This price is revised by 10 paisa every month till May 2003, when its final repurchase price will be Rs 12. For holdings above 5,000 units, you can still take a chance. For these units will be redeemed at an assured price of Rs 10 in May 2003. But keep a close eye at the NAV. Until that time if the NAV crosses Rs 10—then it would make sense to take a call on the opportunity. For MIPs,in most cases you will be better off by staying with the fund till redemption. What’s in it for me in UTI-II? As a government scheme, which will eventually be privatised, what is it value proposition vis-a-vis other private funds? UTI-II consists of new generation open-end or closed funds without any baggage. There is a hope as its a banquet of good and bad performers like any other AMC. And the UTI management can focus on fund management than managing crisis. As an investor what are the strengths, weaknesses, opportunities and threats I should know of in between the lines? UTI-1 is government. So live with it till you have to. UTI-2 looks a reasonable fund family with all key products, a superior economy of scale, now with the management focus as well, the widest reach through the country and massive investor servicing infrasructure. Soon, UTI-2 funds can well qualify as a reasonable vehicle if they state a clearly charted course ahead in terms of portfolio focus. —Value Research Story continues below this ad

UTI’s flagship, the US-64, as well as all its assured-returns schemes are to be retained in a new company, called UTI-1, and the government will continue to give some support to these schemes (primarily tax incentives), in order to stem the outflow of investors from them. According to the earlier scheme, investors who held less than 500 units, would be allowed to redeem them at a price of Rs 12 in May 2003, while those who held more than 500 units would be able to redeem them at Rs 10 each. This has now been made open-ended. So, for instance, if a unit-holder with less than 500 units wants to redeem units in October 2003, UTI will still pay Rs 12 per unit. The government will bring in an ordinance to repeal the UTI Act, after which the mutual fund will be split into two. Both UTI 1 and 2 would be structured as per the regulations of Sebi.

Briefing newsmen after the meeting of the Cabinet Committee on Economic Affairs (CCEA), Finance Minister Jaswant Singh said that the government would meet its obligation annually to cover any deficit in UTI-1 and it would be managed by government appointed administrator and a team of advisors nominated by the government. UTI-2 which would be a ‘working and healthy’ mutual fund managed by a professional who would be appointed from outside at a market salary.

UTI-1 would exist till the last investor in US-64 fixed return and other assured return schemes exit from them. US-64 fixed return scheme would remain frozen and the investors could only sell back to UTI at the assured rate. However, gradually once the investors sell of units of US-64 to UTI, these can be converted to NAV based and transferred to UTI 2 where it can be traded.

Government would also consider certain tax concessions on US-64 with a view to providing an incentive to unit holders to remain in the scheme.

Story continues below this ad

“The objective will also be to create a market and reduce redemption”, Singh said. The government also put in place a bailout package to the tune of Rs 14,561 crore to meet all shortfalls in the US-64 and other ARSs and would meet all the obligations in US-64 beyond May 2003—shortfall on account of US-64 is expected at Rs 6,000 crore and that on account of ARS to the tune of Rs 8,561 crore.

Finance secretary S. Narayan explained since the shortfall would be spanned over a period, part of it would be met from the Budget and part through the issue of bonds. Narayan said that a sum of Rs 1,000 crore has already been pumped in for the US-64 and other ARS, while the remaining Rs 5,000 crore would be arranged next year onwards mainly through bonds.

Donald Trump may replace H-1B lottery with wage-based selection process

World2 hr ago

Days after hiking the fees for new H-1B applications to $100,000, the Donald Trump administration has proposed to overhaul the visa process for high-skilled non-immigrant workers. The Trump administration has suggested a wage-based selection process for the H-1B programme, instead of the current lottery system.

View all shorts

Live Blog