The basic trouble with the Unit Trust has been its close identification with the government. It is this which has led the institution to load up on dud PSU stocks, or to see its role as that of a saviour of the market. Itis this which led hundreds of thousands of small investors to perceive their investments as little more than fixed deposits, subject to the same implicit guarantees. It was also the quasi-government culture which led to the arrogance of not declaring NAVs, or the abysmal fund management.

So long as one operated in a controlled economy, it was easy to match the expectations of investors as well as the government. The trouble started when both the stockmarkets as well as credit markets were unshackled, leading to greater investor-choice. FII flows led to very volatile markets, while the deregulation of interest rates also hit the Trust. At bottom, it can be said that it was UTI's failure to manage the transition to a free economy which was responsible for the crisis.

The US-64 problem now becomes one of ensuring greater professional expertise in the organisation, on the one hand, while managing investor expectations, on the other. To do the former, it has to get adequately-compensated expert fund-managers.For the latter objective, it has to move towards being a fixed income fund, and gradually scale down expectations. The decision to take into account the yield on comparative instruments while announcing dividends is a step in the right direction, although initially yields may have to be higher, in order to ensure that there is no large-scale outflow of funds. At the same time, the three-year time-frame to align the repurchase price with the NAV should be enough, and the government should issue no commitment up-front that it will bail out the scheme again after three years. What it will ultimately do after three years depends on the circumstances, but making a commitment now will only invite moral hazard.