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'UTI asset bleeding won't be allowed'

The government on Tuesday asserted that it would not allow 'asset bleeding' of UTI-I to meet the redemption pressure on Unit Scheme-1964 and proposed to pass on the dividend earned from corporates on its assets to unit holders.

Unveiling the roadmap for UTI-I, which would be the sick box of the Unit Trust of India after the split of the mutual fund into two, Finance Secretary S Narayan announced that the government would also come out with tax free certificates, mainly for large institutional investors in US-64 as an alternative to cash redemption of units.

"In view of the commitment of the Government of India to meet all shortfalls in UTI-I, UTI-I will not indulge in asset bleeding to meet redemption pressure and all sale and purchase of stocks will take place in UTI-II based upon the market perception of its fund managers or the management," Narayan told reporters setting at rest speculation that UTI would sell its bluechip stocks to meet its commitment to unit holders.

The government on Saturday announced the decision to split UTI into two wherein all assets of US-64 and assured return schemes would be transferred to UTI-I valued at over Rs 24,000 (Rs 240 billion) and remaining Rs 17,800 crore (Rs 178 billion) in net asset value based schemes to UTI-II, which would be the healthy UTI.

Giving details of the tax concessions to be provided to unit holders of US-64, Narayan said any dividend received by UTI-I from the corporates in which the assets have been parked, would be passed on to the investors barring small administrative expenses.

The dividend would no longer be retained by the mutual fund to improve its net asset value as was being done at present.

Also this dividend would not be taxable in the hands of the investors of unit holders, he said.

Narayan said units of US-64 would be made freely tradeable in the capital markets besides exempting them from capital gains tax. This would help in creating a secondary market for the units.

"It is expected that those investors or fund managers who are willing to take a long-term view on the stocks of US-64 will find it attractive to take advantage of the exemption from capital gains tax," he said.

He said fresh units in its present form would no longer be issued by UTI-I.

Elaborating on the proposed tax-free certificates, Narayan said this would be alternative document that would be mainly for larger investors like institutional investors including charitable trusts who would like to hold on to units for some more time beyond May 2003.

The purpose behind this option is to ease redemption pressure in May 2003. The government had assured in December last that up to 5,000 units of US-64 would be redeemed at Rs 12 per unit and beyond 5,000 units at Rs 10 per unit.

While the government was committed to the cash redemption in May next, it was giving this option for those who would like to retain the units for some more time earning a tax free return of 6 to 7 per cent, Narayan said.

Narayan made it clear that tax free certificates would be 'totally investors choice' and this may be made available to individual investors as well so that total redemption of extinguishing stock of US-64 'gets spread.'

Regarding the Monthly income plans and other assured return schemes which would also be with UTI-I, Narayan said in the first stage, government would be resetting the interest on the schemes.

Foreclosure would be in the second stage.

He said the ministry has already working on an ordinance for the repeal of the UTI Act and advertisements for appointment of professional managers for UTI-II would be issued thereafter.

He, however, did not give any timeframe by which the ordinance would be issued.

Regarding restructure package for the ailing IFCI, Narayan said it was being worked out but would take some time.

To a question, Narayan said the government would not shy away from taking action against all those responsible for the mess in UTI

"We will take action against all those who are responsible," he said adding government would be guided by the Tarapore committee report and JPC recommendations.

He did not agree with the view that taxpayers money was being squandered away in bailing out UTI. "The government decided on the bailout as taxpayers hold maximum number of units in US-64," he said, adding that it was in public interest.

The government has committed to a bailout package of Rs 14,561 crore (Rs 14.561 billion) to meet the liabilities of US-64 and assured return schemes. There are as many as 24 million investors in US-64.

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