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UTI – Frequently Unanswered Questions

Jul 23, 2001

Recently the Unit Trust of India (UTI) was circulating a list of questions frequently asked by investors in the wake of the US-64 bailout. While the list of Frequently Asked Questions (FAQs) is a sincere effort (for a change) by UTI, we have taken this as an opportunity to construct a list of ‘Frequently Unanswered Questions’. Our list of questions have been ‘inspired’ by the arrest of P S Subramanyam, ex-UTI chairman, for his rather questionable investment decisions. Our list of questions revolve mainly around this development which should not come as a surprise to most investors, even if they are very happy with it.

Another thing, we have only attempted to raise the questions here and have not made an attempt to answer them for obvious reasons.

Our questions:

  • Does UTI make its investment decisions independently?

  • If it does have such an independent equity research outfit, does UTI's management have to go by its recommendations or can it reject them if it pleases to?

  • If news reports are to be believed, the research cell’s warning in case of Cyberspace Infosys was ignored. How many other recommendations made by the research cell were snubbed in the past?

  • If US-64 is going to deliberately make investment decisions like Cyberspace Infosys, it costs the fund (and unsuspecting investors) millions of rupees. If they have a research cell in place it also costs the fund a lot of money, which adds to the fund’s expenses and hikes the expense ratio. This not only adds duds to US-64’s portfolio, but makes it horribly cost-inefficient with the bloated research expenses. Is US-64 actually meant to be a profitable investment option?

  • The former UTI chairman has hinted at orders from ‘above’ for the change of heart with Cyberspace Infosys. By ‘above’ does he mean God, or does he mean the ministry of finance? Or does the ministry of finance play God so often that it means the same?

  • Is the ministry of finance involved in the fiasco as the former UTI chairman seems to have hinted? Where does the US-64 buck stop?

  • Given that the ministry of finance is a government arm and the Central Bureau of Investigation (CBI) is also run by the government, will one member of the family be willing to expose the other?

  • The CBI is expected to investigate UTI’s investment decisions made over the past several years. If other investment decisions implicate the previous chairmen, will suitable action be taken against them.

  • As the Tehelka tapes revealed, taking kickbacks for defence contracts is commonplace in the government. Likewise could taking kickbacks for investments be equally commonplace?

  • Is US-64 is supposed to be an instrument for accepting investment monies from the retail/corporate investor or is it an efficient investment vehicle for the likes of Ketan Parekh to route their favourite stocks for a price?

  • Is US-64 meant to be a money-spinning operation for a half a dozen individuals or is it meant to be profitable investment opportunity for the millions of lower and middle class salaried employees?

  • How many more scams will it take for the government to learn that US-64 is not an amusing pastime for a few, but a serious investment product for many and deserves to be treated like one?

  • What are the government’s long term plans with US-64? Without privatising the investment and research arm, does it believe that it will be taken seriously by the investors?

These are but a few of the questions that need to be answered. Even if UTI does not attempt to answer them, investors most certainly must think about them.

For its part the government must stop joking with investors and act with some degree of rational. Already people are asking that if the long-trusted US-64 could be a target of government extravagance, then can the Life Insurance Corporation (LIC) be far behind. They are asking questions about their policies. The government needs to understand the implications, which are far-reaching. The buck needs to stop where it has to, no matter who is involved.

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