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UTI to consider Malegam recommendations on Oct 30

The board of the Unit Trust of India will meet on October 30 to take a view on the recommendations of Y H Malegam Committee, which went into the issue of corporate repositioning of the country's largest mutual fund.

"The UTI board is meeting on October 30. We will take a view on the recommendations of the Malegam committee," UTI chairman M Damodaran said.

The committee has recommended that UTI, as part of its restructuring, should convert itself into an asset management company with a capital of Rs 10 billion in the face of investible fund of nearly Rs 600 billion.

The stake of the sponsor of the AMC can be capped at 40 per cent and the remaining 60 per cent may be offered to public.

Suggesting that one AMC is enough to manage all the funds of the UTI, the committee also recommended a strategic partner, which could be foreign, and hold majority 60 per cent in the sponsor.

Declining to give any details of the recommendations, Damodaran said UTI board will consider all aspects of the report.

He also said UTI would meet all its commitments including Rs 170 billion redumption in some of its schemes in the next couple of years.

"The situation is not going to remain the same," he said.

The committee has suggested that UTI adhere to Sebi regulations by putting in place a sponsor, a trustee company and an asset management company, the trustee should be capitalised at Rs 50 million and it has to be wholly owned subsidiary of the sponsor.

The sponsoring company can be capitalised at Rs 5.50 billion with sponsoring institutions contributing Rs 2.20 billion and strategic partner the balance of Rs 3.30 billion.

The committee has, however, made it clear that the control of such a large mutual fund should not rest with a single individual or group and there should be an element of public accountability.

This assumes significance in the face of Finance Minister Yashwant Sinha's observation that UTI will not be privatised.

To give a fair deal to UTI's flagship scheme of US-64, which has 20 million investors, the committee suggested that the infrastructure and organisation of US-64 be part of the AMC.

UTI should compensate US-64 by issuing bonds carrying market-linked coupon besides making provisions for contingent liabilities of the flagship scheme.

The proposed AMC would manage the funds of all UTI schemes and charge them management fees. This income after payment of expenses and interest on the bonds to be issued to US-64 should be transferred to the development reserve fund.

Also, US-64 should be net asset value-based before restructuring of UTI.

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