Return
to Story Page
To print: Select File and then Print from your
browser's menu
George Mathew
MUMBAI, OCT 22: The finance ministry is expected to come out with a package of measures to salvage the US-64 scheme of the Unit Trust of India (UTI) shortly. Various proposals like removal of tax on dividend income of US-64, hike in repurchase price and directing banks to invest in the scheme are being considered to revive investor confidence in the largest mutual fund scheme in the country.
Finance secretary Vijay Kelkar has already conducted a series of meetings with the UTI top brass to end the crisis at the largest mutual fund in the country. The ministry is expected to come out with the package after finance minister Yashwant Sinha puts his stamp of approval in a couple of days.
Simultaneously, the IDBI, the leading financial institution, is expected to enter the stock market in a big way to shore up the investor confidence. Hitherto, the IDBI was concentrating on primary market new issues.
``IDBI will be asked to purchase shares from the stock markets,'' said a source, adding that this move willcounter the selling pressure unleashed by foreign institutional investors.
The ministry has also advised the UTI to either step up or at least maintain the sale and repurchase price of US-64 units in November. UTI had raised the sale and repurchase prices of US-64 units by 15 paise each on October 1. The sale price was raised from Rs 14.40 to Rs 14.55 and the repurchase price from Rs 14.10 to Rs 14.25. If the hike materialises, the sale price is likely to be pegged anywhere between Rs 14.70 and Rs 14.75 and the repurchase prices between Rs 14.40 and Rs 14.45 in November.
Another proposal being considered is to exempt US-64 dividend income from tax. ``Currently, dividend payment to unitholders of all mutual fund schemes is taxed under Income Tax Act,'' said a ministry official. If US-64 is exempted from tax, high net worth individuals and corporates will benefit by investing in the scheme.
The ministry is also keen that the trust should maintain its 20% dividend on its flagship scheme. ``There is abelief that the UTI may not be able to maintain the 20 per cent dividend in the current year in view of the depreciation in its investments,'' said a broker, adding that investors needed more assurance from the UTI on this front.
Moreover, the ministry has informally asked public sector banks to buy US-64 and shore up the investor confidence. Banks have already made commitments to buy units worth Rs 1,000 crore. More funds are expected to flow in from the banking sector by the end of October. ``Normally banks buy such units at the end of the month,'' said a banker.
Significantly, US-64 -- which witnessed huge redemptions after the revelation of erosion in net asset value and depreciation in equity investments -- has witnessed sales of fresh units to the tune of Rs 120 crore in the last fortnight. ``Repurchases have tapered off. We're now seeing a rise in sales of US-64,'' said an UTI official.
Investors -- residents as well as non-resident Indians -- have pulled out nearly Rs 750-800 crore from US-64 inthe last fortnight following the developments at the UTI. With the US-64 affair still affecting the stock market sentiments, the government is keen that the investor confidence in the scheme as well as the markets is revived at the earliest.
What has alarmed the government and UTI is that even non-resident Indians (NRIs) and overseas corporate bodies (OCBs) redeemed their holdings in US-64 in a big way till last week.
The RBI and SEBI have decided to keep a close tab on the functioning of the UTI by calling upon the behemoth to provide all relevant information. However, the finance ministry is not expected to take a decision on bringing UTI under the SEBI purview or disclosure of NAV in the near future. Such long-term structural issues will be taken up later, sources said.
Union Finance Minister Yashwant Sinha has already made it clear that UTI will not allowed to suffer and extended he full support of the government. The UTI affair and the resultant turbulence in the market has already affected thepublic sector disinvestment plan of the government.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------