Sinha, who held a marathon meeting with UTI chairman PS Subramanyam on Monday, told reporters that the US-64 is `safe and there is no reason for panic'. The finance minister also hinted at some vested interests playing havoc with the UTI scheme and the stock markets. He, however, refused to elaborate.

Soon after returning from his trip to the US, Sinha also met LIC chairman G Krishnamurthy, Reserve Bank representatives and officials of the finance ministry including finance secretary Vijay Kelkar to review the status and prospectus of US-64 scheme.

The officials of the ministry, who have returned recently from the IMF-World Bank meeting in Washington, pointed out that the reserves of UTI's US-64 scheme, contrary to perception, had gone up. It was also emphasised that UTI had enough reserves to service redemption without any difficulty.

It was furtherclarified that US-64 was not a net asset value (NAV)-linked scheme and it would be a misinterpretation to say that it was being redeemed below the NAV price.

Later, in a press statement the finance ministry reaffirmed that, "they are fully behind UTI and the trust would continue to be vehicle by which investors can participate in the capital market and reap the benefits of their savings and investments."

Reacting to press reports about UTI and especially US-64 scheme, the ministry said that, "While it is a fact that performance of individual schemes and asset structures tend to change with the overall performance of the market, UTI has been able to provide a reasonable return on US-64 scheme through its operations income."

The ministry also called upon the public to avail itself of investment opportunities in capital market under different schemes of UTI including US-64. The press statement also added that the `government has instructed UTI to give all necessary assistance to investors in thisregard'.

The US-64, it was pointed out, was essentially a long-term investment vehicle for investors, especially small ones, and has been in existence for the last 34 years. The sale/repurchase prices of US-64 have been fixed keeping in view the need to provide an easily negotiable financial asset independent of short term fluctuation in value of securities.

The easily liquidity and the reasonably good return, the finance ministry press statement said, "have earned for the scheme a brand equity."

The finance ministry pointed out that the UTI was established under an Act of Parliament as a vehicle for encouraging savings and investments and as a mechanism of sharing the income, profits and gains accruing from such investments with the investors.

While UTI's flagship scheme is the open-ended US-64 through which investors can enter and exit as per their needs, UTI has also over the years introduced several schemes to meet the various investment needs of investors. All UTI schemes including US-64, theministry statement said, have an excellent track record of providing a reasonable return to investors on their investments through its efficient capital market operations under different schemes.

US-94, it added, has been a mechanism by which retail small investors which accounts an overwhelming majority of its investor base to participate in capital market with the opportunity of investing through the scheme in a diverse spectrum of portfolio of the best private and public sector companies, government and corporate securities and reap benefits of income flows and capital appreciation as well as risk mitigation such a holding ensures.

Insight

Assurances without commitment

The finance minister's statement that like the Reserve Bank, Unit Trust of India cannot fail merely recycles assurances issued by him in Washington last week, despite which nervous investors have rushed to sell US-64. Nor will the statement of the finance ministry reaffirming that "the government is fully behind UTI"reassure sellers.

The government must be willing to fund US-64 redemptions at the current re-purchase price. This is also necessary to stem UTI's sales of shares and bonds. The centre's policy must focus on reversing the decline in the secondary market. Only then will the finance ministry's statement that the sale and repurchase prices of US-64 are independent of "short-term fluctuations in the value of securities" cut ice.