Guidelines On UTI-II Structure This Week

New Delhi, December 22: | Updated: Dec 23 2002, 05:30am hrs
The finance ministry will soon come out with policy guidelines to prevent clash of interest between UTI-II and mutual funds of its sponsors which include State Bank of India (SBI), Life Insurance Corporation (LIC), Punjab National Bank (PNB) and Bank of Baroda (BoB). According to ministry sources, the guidelines may be issued this week itself.

A senior ministry official has told FE that the guidelines will be issued in pursuance of the recommendations of the joint parliamentary committee (JPC), which submitted its report to Parliament on Thursday. He added the finance ministry has already started working in this direction.

Pointing out the inherent conflict of interest of financial institutions which have been chosen to sponsor UTI-II, the JPC has recommended that sponsors of UTI-II be those that have not sponsored their own mutual fund.

The committee has, however, added in case this is not found feasible, government must spell out in detail both through legislation and through policy guidelines as to how it proposes to insulate UTI-II from the inherent conflict of interest as regards these institutions.

The finance ministry official said, the JPCs recommendations on UTI will be fully honoured.

At present, the four sponsors of UTI-II together are managing funds worth Rs 6,508 crore through their asset management companies (AMCs). Their combined market share in the mutual fund industry is 5.75 per cent as on October 31, 2002 compared to UTIs 39.5 per cent. SBIs AMC SBI Funds Management is the biggest of the four with a market share of 3.22 per cent (assets under management Rs 3,645 crore). LICs AMC Jeevan Bima Sahayog Asset Management Co is closely following SBI MF in terms of market share. Jeevan Bima has a corpus of Rs 2,609 crore (market share 2.3 per cent).

The other two sponsors BoB and PNB are small players in the fund industry with a market share of 0.12 per cent and 0.1 per cent respectively. BoB Asset Management Co has a corpus of Rs 141 crore and PNB Asset Management Co has Rs 113 crore.

The government is already in the process of implementing UTIs restructuring plan splitting the Trust into UTI-I and UTI-II. As per the plan, UTI-II handling net asset value-based schemes, will be managed by the professionals appointed by the sponsors.

The company with a share capital of Rs 10 crore (Rs 2.5 crore each contributed by the four sponsors), has already been registered.

The UTI-I handling the US-64 scheme and assured return schemes (ARSs), as per the scheme, will be a government-managed company.

A government-appointed public administrator will manage UTI-I with the help of advisors selected by the government.

The JPC, however, has suggested that the schemes in UTI-I should also be managed by independent fund manager preferably from UTI-II for a fee. The management fee can be worked out keeping in mind that the government has already provided a huge bailout to UTI, the JPC report said.

It has said even in the case of US-64 and ARSs, day to day decisions have to be taken regarding buying, holding and selling of stocks. This is not an activity, which can be conducted by government officials because the procedures and processes in government do not allow quick commercial decisions, the report stressed.

The finance ministry official said the government will certainly look at the options for accommodating JPCs recommendations with regard to UTI-I too. He added though the committee has given six months time to prepare the action taken report on its report, the ministry will try to submit it quickly.