UTI, which is the largest promoter of the National Securities Depository Ltd (NSDL), was waiting for the Bombay Stock Exchange promoted depository to get operational. This was because the second depository has promised to levy no custody charge and hence UTI decided not to put all its eggs in one basket. Sources said that UTI had set itself a deadline of January 1 for the second depository to come through failing which it would dematerialise all its holdings. However, in the bargain, UTI ended up paying higher custody charge by keeping the shares in the physical form, considering that the custody charge is much lower in case of shares kept with NSDL vis-a-vis inphysical form.

Sources said the fact that UTI has already saved Rs 2 crore on the shares that it has dematerialised owing to lower custody and transaction charges, could have led the country's largest mutual fund with a corpus of Rs 60,000 crore, to move to full dematerialisation.

UTI had dematerialised 50 per cent of its holdings and was in the process of taking this figure up to 80 per cent for securities available for dematerialisation. It is learnt that the new UTI chairman, P S Subramanyam, who is also on the board of NSDL, is keen that UTI dematerialise all its holdings to not only facilitate better trading opportunities for itself and cost reduction but also set the trend for other mutual funds.

A couple of the private sector mutual funds have already taken up their levels of dematerialisation to about 95 per cent, but the bulk of them is hovering around the 50-60 per cent levels.

The decision by SEBI to ask institutions to trade only in demat shares of around 300 scrips as well as push retailinvestors into the mandatory demat mode as well, could have also prompted the decision of UTI to dematerialise all its holdings.