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Structure of UTI

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UTI Structure - Strength & Weakness

Table of Contents - Part: IV - Mutual Fund Industry in India - UTI Crisis & After

  1. UTI Structure - Strength & Weakness

  2. Unique Features of UTI their Impact on its Functioning

  3. UTI Crisis - its Background

  4. UTI Crisis & After - The Public Outcry

  5. How the Crisis Originated

  6. UTI Crisis - Recommendations of the Deepak Parekh Committee

  7. The Road Map for Restructure of UTI

  1. Finance Minister Bales out UTI - UTI Mutual Fund Comes into Existence

Other Modules under Mutual Funds

  1. Part: I -Introduction & Definition of Concepts

  2. Part: II -Regulatory Measuresa by SEBI

  3. Part: III - Constitution of PK Kaul Committee

To Move to Articles on Venture Capital Fund

UTI is a statutory corporation established under the Unit Trust of India, Act 1963 with a view to encouraging saving and investment and participation in the income, profits and gains accruing to the Corporation from the acquisition, holding, management and disposal of securities. The Act came into force on 1st February 1964.

The initial capital of UTI was Rs.5 crores which has been contributed as under:

  1. Reserve Bank of India (RBI) Rs.2.50 crores

  2. Life Insurance Corporation of India (LIC) Rs.0.75 crores

  3. State Bank of India (SBI) and its subsidiary banks Rs.0.75 crores

  4. Scheduled banks (other than SBI and its subsidiary banks) and notified financial institutions Rs.1.00 crore

The initial capital forms part of US-64 and the subscribers hold units in that Scheme. In 1975, the UTI Act was amended and by virtue of the amendment, the Industrial Development Bank of India (IDBI) took over the rights and responsibilities of RBI under the Act and the share of the initial capital held by RBI was transferred to and vested in IDBI.

he general superintendence, direction and management of the affairs and business of UTI rests in a Board of Trustees which exercises all powers and does all acts and things which may be exercised or done by UTI. The composition of the Board of Trustees is as under :

  1. The Chairman to be appointed by the Central Government in consultation with IDBI.

  2. One trustee to be nominated by RBI.

  3. Four trustees to be nominated by IDBI of whom not less than three shall be persons having special knowledge of, or experience in commerce, industry, banking, finance or investment.

  4. One trustee to be nominated by LIC.

  5. One trustee to be nominated by SBI.

  6. Two trustees to be elected by other contributing institutions viz scheduled banks (other than SBI and its subsidiary banks) and notified financial

  7. institutions.
  8. An executive trustee to be appointed by IDBI, provided that such an appointment may not be necessary if the Chairman is whole-time.

The Board meets not less than six times a year and atleast once in two months.

The Act provides that where the whole of the initial capital has been refunded to the contributory institutions, the Central Government may, after consultation with IDBI, by order, provide for reconstitution of the Board. The Act also provides that regulations made by the Board have to be with the prior approval of IDBI.

There is an Executive Committee which, subject to such general or special directions as the Board may, from time to time, give, has the power to deal with any matter within the competence of UTI. The Executive Committee consists of :-

  1. The Chairman of the Board.

  2. The Executive Trustee where such trustee has been appointed and

  3. Two other trustees nominated in this behalf by IDBI.

The Executive Committee usually meets once in a month.

The day to day business operations of UTI are looked after by a full time Chairman. He is assisted by a team of Executive Directors and Chief General Managers. Presently posts of eight Executive Directors and twelve Chief General Managers have been created by the Board though all posts have not been filled. The post of Executive Trustee has remained vacant from 1st January 2000.

UTI has a three-tier organisational set up with a Corporate Office, four zonal offices and fifty four branch offices. It has about 4.1 crores unitholding accounts (with more than one account held by a single person) under 73 domestic schemes having investible funds at market value as on 30th June 2001 of Rs.56,057 crores. In addition, it has six off shore funds and four venture capital funds. Its management expenses amount to about 1% of the investible funds.

The Board has powers to constitute such other committees whether consisting wholly of trustees or wholly of other persons or partly of trustees and partly of other persons as it thinks fit and for such purpose as it may decide.

In May 1997, at the instance of SEBI, the Board constituted three Asset Management Committees for UTI's domestic schemes, one each for

  1. US-64

  2. equity schemes and

  3. income/debt schemes.

Each Asset Management Committee consists of seven members of whom not less than five are independent outside experts. No person is a member of more than one committee. The Committees' scope of activity includes :-

  1. Overseeing and ensuring that each scheme addresses to/complies with the stated objectives of the scheme, UTI General Regulations, SEBI (Mutual Fund) Guidelines and the prudential investment norms laid down by the Board of Trustees from time to time;

  2. Reviewing scheme performance regularly and guiding fund managers on the future course of action to be adopted;

  3. Considering other key issues such as product designing, marketing, investor servicing, compliance, taxation and accounting policy.

There is also an Audit Committee consisting of five trustees which reviews the systems and controls and interacts with the internal and external auditors. In addition to Board Committees, there are a number of Committees constituted of the executives of which the most important are :-

  1. A First-Tier Audit Committee which reviews the reports of all sections/departments of UTI and initiates necessary corrective action.

  2. An Investment Valuation Committee which reviews the system and practice of valuation of securities.

  3. A Primary Market Investment Committee for considering primary market proposals.

  4. A Property Management Committee to appraise proposals approved by the Building Committee.

  5. An Internal Committee for settlement of dues.

While the power to take decisions related to investment of the funds has been delegated by the Board of Trustees to the Executive Committee and to a lesser extent to the Chairman, exposure limits have been laid down in UTI General Regulations, 1964 and further restrictive limits have been specified by the Board. The broad investment policy of each scheme is laid down under the provisions of each scheme approved by the Board of Trustees or the Executive Committee. The Board reviews the delegation of powers from time to time.

For investments in the primary market, there is a Primary Market Investment Committee consisting of 4 Senior Executives which vets all proposals and submits the same to the Chairman with their recommendations. The secondary market transactions in equity as well as debt are decentralised to individual fund managers who decide on buy and sell strategy after consultation with research analysts. All stock market transactions are reported to the Executive Committee which gives overall direction in respect of secondary market transactions. Report of secondary market transactions is also placed before the Board.

UTI has promoted a number of associated companies and institutions. The details of its investment in those companies/institutions are as under :-

Company/Institution Book Value of
Investment as at
(Rs. lakhs)
% Holding
UTI Bank Ltd 8,912 61
UTI Securities Exchange Ltd. 3,174 100
UTI Investor Services Ltd 1000 100
UTI Investment Advisory Services Ltd. 247 78
UTI International Ltd. 146 100

In addition, it has participated with other institutions in promoting a number of capital market intermediaries like The Stock Holding Corporation of India Ltd., Infrastructure Leasing and Financial Services Co. Ltd., National Securities Depository Ltd. etc.

The investments in associated companies and institutions has been financed out of the Development Reserve Fund. As on June 30, 2001, the Fund amounted to Rs.1,535 crores.

The Act provides that in the discharge of its functions under the Act, UTI shall be guided by such directions in matters of policy involving public interest as IDBI may give to it in writing and if any question arises whether the direction relates to a matter of policy involving public interest, IDBI's decision is final.

Unique Strength & Weakness of UTI

UTI is the largest player in the mutual fund industry with total investible funds of domestic schemes (at Market Value) as at 30th June, 2001 of Rs.56,057 crores constituting about 57% of the total investible funds of the industry. US 64 with a total unit capital as at 30th June 2001 of Rs.12,786 crores had a substantial share of these investible funds. It has certain unique strengths notable amongst them being :-

  1. Its large size with consequential economies of scale;

  2. Its nation-wide well entrenched distribution network and consequently its wide reach and capacity to mobilise large resources;

  3. Its brand image arising out of a public perception that the safety of funds is assured by its pseudo Government character, which may not be entirely unjustified.

  4. The fact that it does not have an AMC to whom management fees would have to be paid which results in higher returns available to unitholders.

It also has certain pronounced weaknesses:

  1. Being the largest player in the mutual fund industry, it also has large investments in individual companies. Its ability to turnaround its portfolio quickly is therefore somewhat limited.

  2. The fact that it combines within itself the roles of an AMC and the Trustee results in the absence of a degree of accountability which an AMC normally owes to the Trustee and the control which the latter enforces upon the former.

  3. There is a lack of transparency, particularly with regard to US-64 where the sale and repurchase price are not linked to the NAV and the NAV is not disclosed to the unitholder.

  4. The fact that UTI is perceived as having a pseudo Government character is as much its weakness as it is its strength, particularly in respect of US-64. While it enchances its ability to sell the units, it also gives a false sense of comfort which may not be true or even desirable. Moreover, in a highly competitive market, public perception of UTI as a pseudo - Government institution may affect its ability to attract and retain the best professional talent or to adequately motivate it.

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[ last updated on 30.09.2004 ]<>[ chkd-apvd-ef ]