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Government bail-out fear unfounded: UTI

India's largest mutual fund said on Friday that weak stock markets had undermined the market value of its investments, but denied a newspaper report that it would need a government bail-out.

An economic daily reported on Friday that the government may need to pump in as much as Rs 63.75 billion ($1.36 billion) into Unit Trust of India's flagship scheme US-64 to restore parity between its net asset value and the price at which it redeems its units.

UTI executive director B G Daga said share prices had fallen on extraneous factors, which did not reflect economic fundamentals and this had affected the market value of investments of all mutual funds, and not just UTI.

"But we are hopeful of a recovery in the market which will help improve the NAV of US-64," Daga said.

The key Indian share index fell 29.4 per cent between the start of March and mid-April when Indian stock markets were rocked by allegations of insider trading and price manipulation.

State-sponsored UTI manages over Rs 750 billion in assets and has more than 43 million investor accounts. Its flagship scheme US-64 has assets worth over Rs 200 billion.

The US-64 is a broadbased portfolio, which represents all sectors of the economy and has been hardest hit by the recent stocks slide, brokers say.

The daily said that the fund requirement represented the shortfall between the US-64 unit repurchase price of Rs 14.25 announced in May and its estimated net asset value of around Rs10.

UTI does not make public the net asset value of its US-64.

Currently, the pricing of its units for issue and redemption is not linked to its net asset value but the move to a market determined mechanism has been recommended by an expert panel.

The fund currently follows a pricing pattern based on special sale and repurchase prices fixed in July, which are progressively increased throughout the year.

An expert committee set up in October 1998 had recommended the trust's portfolio should reflect the market in three years.

The daily quoted UTI Chairman P S Subramanyam as saying the move to market based pricing will be completed by next February.

According to 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.

If the government does bail out UTI, it will be the second time it has come to the mutual fund's rescue in three years. Earlier in 1998, the fund benefited from a Rs 33 billion government bail out.

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