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Govt may consider UTI-II divestment after 3-5 years: FM

The government on Thursday said that it may consider divestment in UTI-II after 3-5 years but did not commit to any new assured return scheme for UTI-I after the bifurcation of the Unit Trust of India, for which the Lok Sabha passed a bill.

"I will neither announce nor rule out anything", Finance Minister Jaswant Singh told the House while participating in a debate on UTI (transer of undertaking and repeal) Bill 2002.

He was queried by members if UTI-I would become extinct after redemption of US-64 and other schemes and whether UTI -- II would be privatised.

The Bill was passed by voice vote after Basudeb Acharia's (CPM) resolution disapproving the Ordinance brought by government last month was rejected.

Advocating a strong and efficient regulatory mechanism for mutual funds under market operations to check any casualty like that happened in case of UTI, Singh assured that government would fully back all the assured return schemes that would be part of UTI-I.

He, however, said UTI-II would comprise operations of all the net asset value based schemes under Sebi regulation developed for mutual funds operating in the country.

Conceding that the first salvage operation for reviving UTI had failed prompting the government to bring the present Bill for bifurcation of the Unit Trust of India, Singh said since September UTI had received net inflow of Rs 3000 crore (Rs 30 billion), a mark of mute confidence, against the total inflow of Rs 2,700 crore (Rs 27 billion) in the whole of the last fiscal.

Singh said UTI - I would be managed by the government through an administrator who would be assisted by advisors and added, "the present administrator is a good officer from the finance ministry and will continue to administer."

UTI-II would be run on a three-tier principle to check any conflict of interest between promoters like Life Insurance Corporation, State Bank of India and Punjab National Bank who operate their own small mutual funds.

Apart from sponsors, the new mutual fund would have trustees as the second layer and the management operations as the final layer, he said.

The government would have no liability whatsoever in this as investors put in their money in NAV based funds for higher returns and they would have to bear the risks, he said and pointed out that 37 MFs with net assets of Rs 113,000 crore (Rs 1.130 billion) were operating in India of which UTI's share was Rs 44,000 crore (Rs 440 billion).

Stating that he was a votary of free market and free enterprises, Singh said this could flourish only with an efficient and strong regulatory mechanism and UTI -- II would be governed by Sebi regulations for MFs.

Asked if UTI-II would be privatised as had been stated by a senior official, Singh said the bill was not intended for this but "three to five years down the line government can consider divestment in this."

On members' apprehensions that UTI-I would be extinct soon, Singh said: "I will not talk of the demise of UTI-I and it would not be possible to announce any kind of new scheme for it."

Taking full responsibility for the debacle in UTI, Singh said such accidents happened when the economy was transforming from a controlled one to market oriented.

"It is to prevent casualties like this, we need a strong regulatory mechanism. Therefore, the government has brought the present Bill," he said.

The Bill provides for repealing the UTI Act of 1963 and bifurcation of assets and liabilities of UTI into two parts, i.e. specified undertaking and the specified company, thereby distancing the government from the UTI and mutual fund activities.

Apart from the transfer and vesting of initial capital of the UTI to the government, the Bill also seeks exemption to the specified undertaking from Income Tax for five years from the appointed day.

Reiteratiing that the government's commitment to US-64, which he described as a unique scheme where investors put in their money on trust with the government, Singh said the government would fully cover the US-64 and other assured return schemes.

On division of infrastructure assets, Singh said division would be worked out carefully and interests of UTI-I would be fully safeguarded, and assured protection of interests of all employeees.

Dismissing the charge that recourse to Ordinance was taken to assure investors of their returns and redemption under the assured return schemes including US-64 in view of coming elections in Gujarat, he said it was to fulfill commitment to investors on assured schemes and move the government away from market operations of the NAV based mutual fund.

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