The Dr Basudeb Sen Chat
Dr Basudeb Sen (Fri Oct 9 1998 8:0 IST)
Good evening I'm here in the chat room.
Sai (Fri Oct 9 1998 7:59 IST)
Hello Dr Sen, welcome to this chat... how do you look back on the UTI crisis? What caused it, to be precise..?
Dr Sen (Fri Oct 9 1998 8:1 IST)
Sai: I think there was no real crisis but misunderstanding and pessimism in the minds of some analysts led to a view that there was a real crisis.
Anil Sinha (Fri Oct 9 1998 8:0 IST)
Dr Sen: My parents in India have invested a lot of money in UTI. Now, Dr Sen, here in the US, there are all kind of rumours that your scheme is a fraud and will go bankrupt. Is this true? Can you explain?
Dr Basudeb Sen (Fri Oct 9 1998 8:5 IST)
Anil Sinha: The scheme has now been running for more than 34 years. It has never defaulted in paying whenever an investor wanted to exit from the scheme. It has consistently given annual dividend in each of these 34 years. Many of the long-term investors have received an annualised return of up to 25 per cent depending on their holding period.
Large number of corporate treasuries continue to believe that there is no other instrument in India which can match the combination of safety, liquidity and return that US-64 has been giving over three decades. So therefore the impression created that US-64 is a fraud is not valid on emperical and theoretical grounds. There is no reason for investors to panic.
PC (Fri Oct 9 1998 8:2 IST)
Mr Sen, how is this scam of keeping the purchase and sale of the UTI-64 anything other than a scam on the lines of any other pyramid scheme?
Dr Basudeb Sen (Fri Oct 9 1998 8:7 IST)
PC: I can only reply that scams are scams; US-64 is not a scam. No scam lasts for 34 years; only genuine performance can continue even after 34 years.
Vinod Rathod (Fri Oct 9 1998 8:3 IST)
Dr Sen: Is it true that the UTI problem is worse than the Harshad Mehta scam? If not, where did the Rs 1,050 crore disappear?
Dr Sen (Fri Oct 9 1998 8:11 IST)
Vinod Rathod: This is not a scam at all. A scam cannot continue for 34 years and still hold millions of investors with it. US-64 performed consistently in terms of liquidity, return and safety, despite differences in market conditions and economic conditions over the last three decades. It would be silly and totally wrong to use the word scam. Nothing has disappeared; no money has disappeared. Because the UTI has the strength to disclose, it has in its latest balance sheet informed that the portfolio of securities has on 30th June 1998 seen a depreciation in value because of a sharp fall in stock prices within a few weeks, which the UTI believes is an aberration, temporary, and therefore not relevant to US-64's long-term investors' interests. So there is nothing which has disappeared.
Amita Bhatia (Fri Oct 9 1998 8:17 IST)
Dr Sen: I believe the crisis at UTI has effectively scuttled the divestment process. The government will not divest because the Sensex will not go above 3200, which means the fiscal deficit will not be tamed. Please comment.
Dr Basudeb Sen (Fri Oct 9 1998 8:25 IST)
Amita Bhatia: If stock indices can fall by 30 per cent between May 5, 1998 and October 8, 1998, indices can also rise by similar percentage or more within a similar span of time. Besides the programme or strategy of investment will also determine how much the government can raise through divestment. I cannot predict what the government plans to do considering that the government's intention to reduce the fiscal target is not achieveable just because stock prices are at a low level today.
Sai (Fri Oct 9 1998 8:11 IST)
Dr Sen, considering that the UTI was created by an act of Parliament, and hence is out of the purview of the SEBI, Parliament should forthwith constitute a JPC to investigate into what went wrong on Black Monday.
PC (Fri Oct 9 1998 8:18 IST)
Dr Sen, if the SEBI had authority over you (equivalent to what it has over the private sector funds) would it let you reprice the Unit-64 above NAV? An opinion, please.
Dr Basudeb Sen (Fri Oct 9 1998 8:22 IST)
Sai & PC: UTI has to go by the provisions of the laws which regulate it. UTI legally has no other choice. So this question is not relevant to UTI at the moment....
PC: US-64 is not an NAV-driven mutual fund. US-64 gives an annual dividend every year to all its unit holders at the same rate irrespective of when the investor entered. It also announces monthly prices for sale and repurchase. These prices go on rising from month to month between July to next May.
The dividend is declared in the month of June and next July the prices come down as compared to the prices in the month of May. I am not aware of any scheme elesewhere in India or the world which operates on this principle. If you are comparing US-64 with NAV based open and mutual funds as it operates in, say, the United States you are comparing uncomparables.
UTI itself has other schemes which corresponds to your concept of open and mutual funds. I will give some names for example Master Gain, Grand Master and since October 1 1998 Master Plus. In India there is not a single open-end mutual fund scheme which has a corpus of more than Rs 500 crore. (Excluding of course UTI's mutual fund schemes). US-64 which is different type of scheme has a corpus of over Rs 22,000 crore.
Ashutosh Mondal (Fri Oct 9 1998 8:24 IST)
Is it not true that the extent of the problem was evident in June, but was not revealed to the world outside because it would have affected Mr Gupta's chances of getting the IDBI job?
Dr Basudeb Sen (Fri Oct 9 1998 8:28 IST)
Ashutosh Mondal : Mr Gupta joined IDBI on July 1, 1998, US-64 dividend was announced in the evening of June 30, 1998. So I do not see any way of correlating events that you have done. Such decisions of appointing a chairman for the IDBI and declaration of US-64 dividend are purely independent events.
PC (Fri Oct 9 1998 8:24 IST)
Dr.Sen, the principles on which UTI operates the US -64 are common to a lot of liquid income funds, the price adjustment used to take care of the dividend yield but the time of entry may vary. The truth is that the sale/repurchase price has to reflect the NAV or its pyramid scheme will collapse under the impact of a decreasing NAV.
Dr Basudeb Sen (Fri Oct 9 1998 8:35 IST)
PC: You are trying to compare US-64 from the perspective of the mutual fund product. This as I have pointed out is wrong.
US-64 is an entirely different product, I have personally not found any mathematical proof that US-64 and its product features and the needs that most of the investors of US-64 meet from the scheme are dangerous or risky, unless under extremely adverse situations in respect of the environment in the different financial market segments and portfolio composition.
Emperically, US-64 itself is an example that such a scheme can be managed suscessfully under varying conditions for 34 years and I believe for much longer periods. Since we are managing such a scheme we have always to take into account the risks inherent in managing such a scheme and we follow those principles and will continue to take oppurtunities that is created for us because of the rumours, the effect of such rumours on the market as well as on a small section of our investors. These oppurtunities will help us protect the interest of the investors under US-64.
I am sorry a fund manager of US-64 cannot reveal all his techniques and plans.
Vinod Rathod (Fri Oct 9 1998 8:31 IST)
Dr Sen: Having invested in blue chips, has the UTI discussed stock-related issues with captains of industry in the past. Or was the meeting with the Ambanis just an eyewash?
Dr Basudeb Sen (Fri Oct 9 1998 8:39 IST)
Vinod Rathod: The presentation by Reliance Industries to the UTI as a major shareholder on their current performance on their future plans is an independent event and has nothing to do with US-64 schemes. We always follow up on the plans of companies as a regular basis as part of our fund management and investment monitoring activities This year we had decided in July itself that we will request for regular presentations in which we have substantial stake. And soon after they publish their half yearly results.
PC (Fri Oct 9 1998 8:38 IST)
Dr Sen, the fact is that when a scheme invests in the same underlying assets -- stocks and bonds, it has the same features, whatever you call it. A time deposit is a time deposit, whether you call it income deposit or fixed investment scheme, and an open-ended commingled fund, it is just that. Let's see this as an extant situation, what interests me is what steps do you plan to take?
Dr Basudeb Sen (Fri Oct 9 1998 8:40 IST)
PC: Proof of the pudding is in eating, instead of knowing the plans in advance please continue to watch the perforamce of US-64 in future.
Shahezadi (Fri Oct 9 1998 8:40 IST)
Dr Sen, what is the exact state of US-64's reserve position.. can you tell us?
Vinod Rathod (Fri Oct 9 1998 8:39 IST)
Dr Sen: How will you gain back your lost Rs 1,050 crores???
Dr Basudeb Sen (Fri Oct 9 1998 8:43 IST)
Shahezadi: US-64 reserves as on 30th June 1998 was a negative Rs 1098 crores as far as I can recall. Please wait for a few days you will see this in the abridged balance sheet that the UTI is scheduled to publish in the newspapers.
Vinod Rathod: We have not lost so there is no question of gaining.
Sai (Fri Oct 9 1998 8:41 IST)
Dr Sen, what about US-64 redemptions? Has there been a run on it as yet? Do you anticipate one?
Dr Basudeb Sen (Fri Oct 9 1998 8:47 IST)
Sai: We do not anticipate any run in on 94-95 and 95-96 units.We have redeemed US-64 units worth about Rs 20,000 crore. In October, in the last few days, our reports indicate redemptions have been of the order Rs 500 crore. For an open end scheme like US-64 redemption is a normal activity -- that is what we offer as liquidity, one of the features of the scheme, which investors have liked for 34 years.
Dr Basudeb Sen (Fri Oct 9 1998 8:48 IST)
It was very nice talking and responding to very interesting questions. I would have liked to answer all your questions however as per schedule I have to now take leave to attend another appointment. if I get an opporunity, I shall respond to all your questions later.
Continued
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