M A I N   N E W S

Poor response to UTI package
Investors angry, demand action against guilty
Prabhjot Singh
Tribune News Service

Chandigarh, August 1
The special liquidity package announced by the management of the Unit Trust of India got off to a poor start as hardly any investors in the premier fund unit scheme — US-64 — sought redemption on the opening day today throughout the region.

A quick survey by The Tribune revealed that investors were bitter, upset over the irregularities committed by the management of this “government-run mutual fund” thus betraying their unflinching faith in what they considered a “safe investment” and wanted stern action against the guilty, including the Finance Minister, for letting the fund “drift to disaster”.

The UTI’s announcement to discontinue the sale and repurchase of US-64 for six months had led to the voicing of concern that the temporary withdrawal of liquidity might adversely affect the fund investors’ genuine need for cash in the case of an emergency. The UTI responded with the special liquidity package, providing an exit window, for holding up to 3,000 units, with the assured price starting from Rs 10 and increased by 10 paise every month to May 31, 2003, or Net Asset Value (NAV) based price from January 1, 2002, whichever was higher.

But the scheme did not evoke any response from investors who want to hold on to the scheme as the returns are still attractive.

The investors were , however, feeling cheesed off over the manner in which the “UTI scam” took place. “There were irregularities galore,” remarked an economist maintaining that investors from lower middle and middle class families had been unfortunately under the wrong impression that it was a “government fund”. “It is now that they have realised that it was a mutual fund, the management of which , because of interference from government or other circles, wreaked havoc”.

“My father,” says Mr Tejbans Singh Jauhar, a city-based photographer, “ religiously invested in this scheme maintaining that it was the safest investment. But now it is gone ‘phut. The UTI management neither transfers the units nor responds to letters from investors.

“The UTI scheme has brought investors to the verge of committing suicide. The market is stagnant. The investor is stunned and shocked. During the past couple of years, scams have taken a heavy toll of our economy. The Finance Minister is responsible for this scam. Let him resign,” adds Mr Tejbans Jauhar.

“People’s faith in the scheme has been eroded,” says Mr Chaman Lal Sharma, a former president of the Chandigarh Taxation Bar Association and the Chandigarh Club.” Hundreds of thousands of investors have been ruined.

“Both the Finance Ministry and the Prime Minister’s Office had been interfering too much in getting UTI investments. Let there be a thorough probe and responsibility fixed. This scam was definitely the result of political interference and the beneficiaries or those responsible for this big scam must be punished according to the law of the land,” says Mr Sharma.

Mr M.L. Sarin, a senior advocate, was lucky to sell off more than 90 per cent of his UTI units in May this year on the advice of his investment advisers. “But I feel sorry for all those small investors, including domestic helps, who had put in their life savings in the US-64. I also feel sorry for my father-in-law, an 87-year-old bureaucrat (ICS officer) whose unflinching faith in the UTI has been breached. His life-long savings have gone.

“The UTI has been a trust-based organisation. There could not be a greater breach of trust than the present scam. Some heads must roll to re-establish the faith more than 20 million investors had in this mutual fund. Only a handful of rogues are responsible for this mess-up. Let there be action against the guilty in a time-bound manner so that such scams do not take place elsewhere,” cautions Mr Sarin.

JALANDHAR: The UTI has hit over one lakh investors of Doaba, as they have suffered a loss of about Rs 35 crore.

A quick survey revealed that thousands of small time investors, mainly belonging to middle class families of the city, had invested more than Rs 100 crore in the US-64 scheme in the past years.

Mr Ram Parkash Sharma of Basti Sheikh locality, who had purchased 1600 shares five years ago, criticised the Central Government for its alleged failure to check the investments made by the UTI authorities in Cyber Space, which led to huge losses.

‘‘I had converted my ‘‘Mastergain’’ shares into ‘‘US-64’’ some five years ago for it was a safe bet for an investor better than investing in the share market or other stocks. But little did I know that the wrong policies of the authorities would cause me such a huge loss. The matter should be probed and the Central Government should pay for the loss to the investor’’, demanded Mr Sharma.

‘‘In fact, more than one lakh investors in the city had presumed that the US-64 stock was a Central Government-sponsored scheme. Besides, the UTI had paid a hefty dividend and bonus to its investors in the past 10 years and there could not be any harm to their investment. But, the UTI scam has virtually shaken the faith of the investor in the share market, affecting it badly,’’ Mr Kuldeep Ahuja, a local share broker, said.

Mr Ahuja further said that the blanket ban the on repurchase of more than 3,000 shares of the US-64 stock till January, 2002, had troubled small investors, who feared that the value of the US-64 stock would go down further, between Rs 7 and Rs 8 from its present value of Rs 10. ‘‘You see, the UTI will announce the Net Asset Value in February and it is being presumed in the share market that the NAV will certainly be curtailed further, thus affecting the final value of a share,’’ he added.

AMRITSAR: There were hardly any takers for redemption on the opening day of the repurchase bailout of the US-64 scheme. Sources in the UTI told The Tribune that since the holy city does not have a large investor base under US-64, there was no one seeking the new price offered.

A senior investment consultant, Mr Amit Kochar, claimed that the US-64 scheme offered quick liquidity and used to fetch Rs 14 plus value with an average dividend of around 12 per cent to 14 per cent annually. But since it stood frozen for six months, it created some kind of panic. The small investors continue to play the wait-and-watch game. A small investor, Mr Ram Nath Khanna, felt that the government would surely come out with a package to bail out the most popular scheme.

The most disturbing factor for the investor had been the huge discount offered by the government which had shaken the faith of investors. Small investors were able to encash their holdings at a fairly remunerative price along with the dividend.

An important segment which felt aggrieved comprised persons who had invested in the MIP ( monthly income plan). They were getting assured 12 per cent returns and now might have to settle for less, added an investor consultant. Mr Kochar, however, contended that there was still no risk for the unit-linked insurance policy, UTI bond funds and children career plan schemes which were not only safe but were described as good investment.

A senior Professor of Economics and Registrar of Guru Nanak Dev University.

Dr R.S. Bawa, said that there was betrayal of small investors due to the UTI, scam, but hastened to add that there was need to be more transparent in buying equity. He added that portfolio management should not get involved in high-risk investments in such companies which failed to deliver and the UTI should call back its investment and off-load its holding in the case of even a small drop in the sensex. Vigilance was the key to high-profile investment and the fund managers should maintain a close watch on the companies which failed to maintain consistency, he added.

BATHINDA: A cross-section of financial consultants, taxation advisers and chartered accountants, while talking to TNS, said that now touts might purchase UTI-64 units from investors at low rates by cashing in on their desperation.

They opined that first the investors had borne the brunt of the UTI-64 scam, thanks to the alleged fraud committed by its management with the patronage of the Central Government and now they would be looted by the touts in liquidation of their equity.

Mr Vijay Kumar Garg, taxation adviser, Mr Vijay Raj Jindal, chartered accountant, and Mr R.L. Garg, taxation and financial consultant, said that first the Central Government drastically reduced the rate of interest on small savings causing a huge loss to investors and now the UTI-64 scam had broken their backbone.

They added that the future of UTI-64 investors was very bleak as they had been left without any option. The investors had been looted by institutions they trusted the most.

Mr Amarnath (name changed), a state government employee, who invested regularly in schemes of the UTI, laments that even government-operated mutual funds were mismanaging the money of the public. “It was just for a good and reasonable rate of returns that we had invested money in the UTI. Now the future of the investers is bleak, he said.

Mr Chander Mohan Ruby, another investor of the UTI, said that at one point of time its schemes commanded more faith among investers than those of banks. But the debacle had resulted in the “Death of the faith” in the Unit Trust of India.

Patiala: A cross-section of academicians and investors hold inner faults in the system responsible for the “collapse’ of the UTI, but hoped that it would improve soon with the faults being plugged.

According to Dr K.C. Singhal, Professor and Head, Punjab School of Management Studies, Punjabi University, there were weaknesses in the inter-linkages of the institutional arrangement apart from extra-constitutional factors such as the PMO’s involvement.

“The question is not whether the PMO is involved or not, but whether the loopholes prevalent in the UTI are minimised or not. The regulatory framework should be strict and formal and the chief executives of such top financial institutions should be above board and men of integrity;” said Dr Singhal.

He added: “Corruption is not new in India. While a proper system prevails in western capitalist countries, in India, due to a market friendly atmosphere, there is intervention, free interplay, thereby no social security which ultimately leads to corruption.”

Mr Y.P.Sharma, who retired from the PSEB and is at present an investor in the UTI, said that the fall suffered by the UTI was comparatively less than in the case of other securities because of its assurance of giving a certain sum of money as increase every month to its investors. He said, “The UTI was considered a saving bank where people could deposit and withdraw money any time. The situation is likely to improve in the future.”

Mr Sanjeev Mahajan, yet another investor, said,: “Initially, the UTI deposited 20 per cent of its interest income from the corpus fund in the stock market or equity and the rest in the debt market. From 1990 onwards, the investable funds were more for equity than debt and as a result, the records show that it deposited almost 70 per cent in 1998 in equity.”

Mr Mahajan added that this situation was known to big investors and companies who withdrew their money much before the actual scam came to notice. He said this would otherwise have led to the crash of the stock market in the entire country.

LUDHIANA: Mr Tarvinder Dhingra, Chairman, LSE Securities Limited, says the decision of the management to increase the investment exposure from 25 per cent to 75 per cent to the share market within a span of eight years, against the recommendations of the Deepak Parekh Committee, increased the risk. Secondly, the interference of the government and corporate houses in investment decisions and the lack of awareness among the investors about the nature of the scheme are the real culprits behind the present scam.”

Mr Anil Luthra, a leading investment agent in UTI shares, felt that “government policies may have temporarily affected the scheme, but there is nothing to worry about. The redemption of the shares of the US-64 scheme has already started.”

Mr Ramesh Gupta, a bank employee, who had invested in the scheme, says “the government has cheated the innocent investors in a big way. The Finance Minister, and the PMO are directly accountable for the present mess.” While Mr Dhingra wanted that the government should privatise the UTI at the earliest as it could not handle public money in a professional manner, Mr Luthra said that the problem had been already more or less solved, and in the next few days the investors would start getting their money back smoothly. “The shares of the UTI should be linked to the Net Asset Value, and the government should not allow the redemption of the shares at more than the market rate, as it would further affect the interests of the remaining investors,” opined Mr Gupta.

The government should fulfil its promise of returning the money at the promised rate of interest. The guilty officials should be proceeded against in accordance with law, declared Mr Rajinder Jain, a retired school teacher.

With inputs from Varinder Singh (Jalandhar), Ashok Sethi (Amritsar), Chander Parkash (Bathinda), Manoj Kumar (Ludhiana) and Anita Tayal (Patiala).