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May 18, 2001
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Money > Reuters > Report May 18, 2001 |
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UTI fund bailout to cost $1.4 billionThe Indian government may need to bail out state-sponsored mutual fund, Unit Trust of India, for the second time in three years after sharp falls in share prices depleted its investments, a newspaper said on Friday. The Economic Times reported on Friday that the government may need to pump in as much as Rs 63.75 billion into UTI's flagship scheme to restore parity between its net asset value and the price at which it redeems its units. The fund requirement represents the shortfall between the flagship scheme, US-64 unit repurchase price of Rs 14.25 announced in May and its estimated net asset value of around Rs 10, the newspaper said. UTI does not make public the net asset value of its US-64 scheme. Officials from the fund were unavailable for comment. UTI, India's largest mutual fund, manages over Rs 750 billion in assets and has more than 43 million investor accounts. Its US-64 scheme has assets worth over Rs 200 billion. It is a broad-based portfolio which represents all sectors of the economy and has been struck hardest by the recent stocks slide, brokers said. Since the beginning of the year, the Sensex had fallen 7 per cent. It is also around 40 per cent below the life high reached in 2000. Currently, the pricing of UTI's units for issue and redemption is not linked to its net asset value. The fund currently follows a pricing pattern based on special sale and repurchase prices fixed in July, which are progressively increased throughout the year. But an expert panel set up in October 1998 had recommended that the trust's portfolio should move to a market determined mechanism in three years. The paper quoted UTI Chairman P S Subramanyam as saying the move to market based pricing will be completed by next February. According to the newspaper, the committee also recommended that when the switch is made to market-driven pricing, the gap should be covered by funds from the government.
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