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UTI - US-64 SCAM


FRAME OF UTI - US-64 SCAM
The Unit Scheme of 1964 which is more commonly referred in terms of US-64 of the Unit Trust of India faced troubles and the investors of this cadre faced a major jolt in the year 1998 when they came to known certain issues through the media reports stating that things were seriously wrong with the mutual fund major. The US-64 scheme which was extremely doing good suddenly noticed depleting funds and vindication which was exceeding the sales. This happened during the period of July 1995 and March 1996 and the reserve came down by Rs 3,104 crores. Once this was noticed the analyst team came up stating that the declining compilation along with the redemptions could soon result in a liquidity crisis.


UNCONTROLLED EXCITEMENT AND AGITATION AMONG THE INVESTORS
This resulted in uncontrolled excitement and agitation among the investors in terms of proper fund management and internal control systems. The fund situation of the US-64 was further depleting down by the end of 1998 where the equity component's market value had come down to Rs 4200 crores from its asset price of Rs 8200 crores. There was a significant reduction in the total asset value mainly because of the storm tossed stock market condition during the period of 1993-1996. The US-64 units, which were sold at Rs 14.55 and repurchased at Rs 14.25 in October 1998, thus were around 50% and 47%, above their estimated NAV. Amidst growing concerns over the fate of US-64 investors, it became necessary for UTI to take immediate steps to put to rest the controversy.

CONTROVERSIES IN US - 64
It was by passing a Parliament Act in 1964, that the UTI was established so as to channelize the nation's savings via mutual fund schemes. But in those days it was very difficult for the organization to raise funds because the public was not really very much aware or clear of the scheme procedures or averse to change or innovation just sticking on too much to traditional values. But however after many years UTI was able to manage a good capital. As on February 2001, UTI was managing funds worth Rs 64,250 crores through over 92 saving schemes such as US-64, Unit Linked Insurance Plan, Monthly Income Plan, etc.

UTI WAS ABLE TO BUILD A VERY STRONG NETWORK
UTI was able to build a very strong network of nearly 75,000 agents across the country with 54 branch offices, 295 district representatives and as mentioned earlier the first scheme introduced by them was Unit Scheme-1964 commonly referred as US-64. Capital worth Rs 5 crores was funded for this scheme by Reserve Bank of India (RBI), Financial Institutions, Life Insurance Corporation (LIC), State Bank of India (SBI) and other scheduled banks including few foreign banks. This scheme was quite interesting for the public with many promising features like attractive income, ready liquidity and tax benefits. The US-64 scheme was very successful in the first year of its launch itself where it was able to sum up Rs 19 crores and offered a 6.1% dividend as compared to the prevailing bank deposit interest rates of 3.75 - 6%.

UTI WAS ABLE TO BUILD A VERY STRONG NETWORK
Though after 2000, US-64 was doing good by increasing its capital base to Rs 15993 crores, with nearly more than 2 crores unit holders across the globe, by the late 1990's it was noted for its careless and inefficient management. It was when the UTI chairman P.S.Subramanyam in 1998 disclosed that the funds of the US-64 are running in negative by Rs 1098 crores. Once this was revealed there was a great dip in the Sensex by 224 points and little later by another 40 points reaching a 22-month low under selling pressure by Foreign Institutional Investors (FIIs). This crisis led to the confrontational values about US-64. This panic reports made the tensed investors soon release US-64 units worth Rs 580 crores. More fuel was further added to this problem by the different media coverage.Under the guidance of Deepak Parekh, the then chairman of HDFC bank in October 1998 a committee was formed by the UTI to do a formal assessment on the working scheme with the intention of instituting change for more transparency and accountability in working of the scheme.

THE MONTH OF JUNE 1999 US-64 EQUITY PORTFOLIO HAS BEEN RECONSTRUCTED
UTI Scam
Since June 1999, US-64 equity portfolio was reconstructed. It had stocks from IT (Satyam Computers, NIIT and Infosys) and FMCG (HLL, SmithKline Beecham and Reckitt & Colman) sectors. US-64 had then reduced its weightage in the commodity stocks (Indian Rayon, GSFC, Tisco, ACC and Hindalco.) Finally things were falling in place and the US-64 controversies were trying to restore the trust of the investors. In 1998-99 the Government advocated for the transfer of PSU shares to a special unit scheme known as SUS'99. Also the Industrial Development Bank of India who were the key promoters added nearly 450 crores to the unit capital thereby aiding to bridge the reserves deficit of Rs 2,800 crores in 1998-99. UTI came up with plans to execute and make sure that entire responsibility and liability was got by the reinforce of a strong research team which involved two sub groups to govern the equity and debt portion of US-64. Also to provide market analysis and research reports, research cell on independent equity was formed.

COMMERCIAL TAXES DEPARTMENT AND THE CENTRAL BUREAU OF INVESTIGATION
UTI-US64 Scandal


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