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Offload equity in assured return schemes: Malegam committee

BS Economy Bureau

The Y H Malegam-committee has recommended that Unit Trust of India completely dispose of the equity investments in assured return schemes. The equity content in the portfolio of 25 such schemes with a total unit capital of Rs 272.40 billion as on June 30, 2001, is in the range of 15-20 per cent.

As per the information provided by UTI to the joint parliamentary committee probing the stock market scam, the cost of acquisition of the equity portfolio of about 45 income schemes stood at Rs 119.69 billion. The market value, as on May 31, 2001 had, however, dipped over 28 per cent to Rs 85.20 billion.

The committee, which has submitted its report, has said that UTI should recast the portfolio of these schemes as soon as possible. It should ensure that the portfolio of all these assured income schemes consist of only government securities and debt instruments.

Of the 25 assured return schemes, 16 with unit capital of Rs 178.14 billion mature within the next three years. Five schemes which offer returns on a one-year basis have unit capital of Rs 46.67 billion and mature between March 2005 and February 2006.

There are four long-dated schemes with unit capital of Rs 49.39 billion which mature between September 2014 and June 2020.

The committee has said that regarding schemes where only one year's return is guaranteed, the returns assured should be strictly in line with their earning capacities.

It has also recommended that Income Tax Act be amended such that dividend received on assured return schemes floated before June 1, 1999 not be entitled to exemption of tax under Section 10 (33).

Further, no tax should be levied on the fund under Section 115 R on dividend distributed to unitholders.

The Malegam panel has also recommended that the trust should also make provision for contingent liability arising out of the gap between present value of future liabilities under assured return schemes and the value of assets available under the schemes. The paring of equity exposure in these schemes has been recommended specifically for bridging the gap.

UTI board to discuss Malegam report on Oct 30

UTI chairman M Damodaran on Thursday said the UTI board would meet on October 30 to take stock of the Malegam committee's recommendations on corporate positioning of the Trust.

Damodaran, who met officials in the finance ministry told reporters, "The report will be placed before the board on October 30." The chairman further said the Trust would honour the returns in all its assured schemes.

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