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Kalam promulgates Sebi, UTI ordinances

The ordinance to repeal the UTI Act was promulgated on Tuesday paving the way for setting up of an asset management company for managing the net asset value based UTI-II after the split of the country's largest mutual fund within two months.

Along with the ordinance to repeal UTI Act of 1963, President A P J Abdul Kalam also promulgated the ordinance to amend the Sebi Act for providing extra teeth to the market regulator besides enlarging its board.

Following the issue of the ordinance, a notification would be issued for setting up an AMC with a initial corpus of Rs 10 crore (Rs 100 million) by Life Insurance Corporation, State Bank of India, Punjab National Bank and Bank of Baroda with 25 per cent interest each.

The government would carry out a due diligence for UTI-II to enable its privatisation by the proposed AMC, joint secretary (capital markets) U K Sinha told reporters.

The chairman and top executives of the proposed company would be appointed by the new management and the professionals would get market-linked pay package.

Till the issue of notification for splitting UTI into two, the mutual fund would continue its operation in the present form.

The equity held by IDBI, the leading stakeholder in UTI, along with other financial institution and banks would be paid back.

UTI has an equity base of Rs 5 crore (Rs 50 millin) but manages assets amounting to about Rs 42,000 crore (Rs 420 billion).

Sinha clarified that the AMC to be floated for UTI-II would be a transitional arrangement and that NAV-based fund would be privatised in a year or two.

"The proposed AMC floated by Life Insurance Corporation and three public sector banks is only a transitional vehicle. We don't want UTI-II to be PSU-run mutual fund," he said.

Sinha did not rule out the possibility of the present UTI chairman M Damodaran continuing as the chief administrator of UTI-I after the split.

UTI-I would comprise of US-64, all assured return schemes, special unit scheme of 1999 and the development reserve fund, which would together amount to Rs 25,000 crore (Rs 250 billion).

UTI-II having about 25 NAV-based schemes has assets under management amounting to Rs 17,000 crore (Rs 170 billion).

The government has already committed to a bailout package of Rs 14,561 crore (Rs 145.61 billion) to UTI to meet its liabilities on US-64 and other assured return schemes.

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