Search the Internet          Tips  Sites: Finance, Investment

Finance ministry to repeal UTI Act

P Vaidyanathan Iyer

The finance ministry has finally decided to repeal the Unit Trust of India Act and corporatise the mutual fund behemoth.

According to finance ministry officials, after considerable deliberation with senior UTI executives, it was decided that the objective of distancing the government from the fund could be achieved only by a repeal of the Act.

In fact, the Malegam Committee had warned the Centre against just amending the Act and had strongly recommended that the Act should be repealed.

The committee said in case of a mere amendment, there was a danger the government might be left with residual responsibilities under the Act, which would result in a public perception of continued government accountability.

Officials said the broad contours of the new structure had also been discussed. In the new avatar, the trust would be converted into a company and would be Securities and Exchange Board of India compliant.

UTI would have a three-tier structure with a trustee company, a sponsoring company and an asset management company after the revamp.

Officials said the ministry was in agreement with UTI's argument that three AMCs - one each for the income schemes, equity schemes and US-64, as recommended by the Tarapore Committee - was not feasible.

"It is only after the new structure is in place that bringing in new sponsors for the trust would be considered," an official said.

IDBI, State Bank of India and LIC, which contributed almost 85 per cent to the trust's initial corpus, had told UTI that they could not be the sponsors even in the revamped structure.

Quoting Sebi regulations, the institutions had said that since they were sponsors of mutual funds floated separately by them, they could not act as sponsors to some other fund.

Finance ministry sources said UTI might even consider setting up a special purpose vehicle for the limited objective of investment in the sponsoring company. The government had initially thought of roping in multilateral agencies as sponsors.

The Tarapore Committee had recommended that UTI Bank be asked to pick up 49 per cent stake in the three AMCs. The bank has, however, claimed that it has not received any such proposal.

Powered by

ALSO READ:
The UTI Crisis
The Rediff Budget Special
The Rediff-Business Standard Special
Money

Tell us what you think of this report