Uti To Utilise Drf For Assuring Returns
The Unit Trust of India (UTI) has finally taken a decision to guarantee returns of its monthly income scheme from the Development Reserve Fund (DRF). The decision comes after the Securities and Exchange Board of India (Sebi) recently cleared a proposal allowing UTI to do so, and the trust took time to discuss the pros and cons of such a move.
According to UTI sources, the trust would now aim at guaranteeing returns for five years under the next tranche of monthly income plan, which is due to open in February. Sebi had, in 1994, banned UTI from guaranteeing returns for a five-year period, and asked it to do so for one year only. UTI later claimed this had a negative impact on its prospective unit-holders, most of whom were retired people or widows who needed a steady flow of assured monthly income.
We will guarantee returns from DRF. The idea behind seeking the clearance was to try for a five-year guarantee, a UTI official said.
Sebi recently allowed guaranteeing for five years, provided the fund had a sponsor, who would function as a guarantor in case of a shortfall. UTIs problem was that it had no sponsor owing to its structure as determined by the UTI Act.
With the Rs 300-crore DRF now serving as the guarantor, the problem is solved for UTI.
UTI, despite the clearance, was in two minds about implementing it, since the Rs 300-crore fund also has other uses for UTI. The issue was whether the trust will finally guarantee returns from DRF or stick to the one-year guarantees it is providing now.
They had come to us with the proposal and we have cleared it. It is up to them whether to utilise that or not, a Sebi official said.
On another front, it is clear that the broader restructuring would take some time to come about. UTI has finally informed Sebi that it is in the process of setting up three asset management committees to begin the process of interim recast.
Till recently, UTI was of the view that since the overall restructuring would be coming about with the holding company structure being approved by the board of trustees, it was no longer necessary to go ahead with the interim recast.
But UTI has now informed Sebi it was indeed going ahead with the interim arrangement since changing the entire overall structure would require amending the UTI Act.
Sebi officials said UTI had informed the regulator about its decision. Three AMCs, one for equity schemes, another for income schemes and the third for its flagship scheme US-64 are to be set up now, the Sebi officials said.
With the new chairman G P Gupta now taking charge at UTI, it is now time for the Rs 56,000-crore mutual fund behemoth to proceed with the discussions on the other reforms necessary. For instance, the overall recast would also be discussed with Sebi, officials at the regulatory body said.
However, the other crucial issue relating to the declaration of NAVs of the flagship US-64 is still pending. Sebi officials said the regulator is aware of the problem and wants UTI to disclose NAVs weekly for its US-64 scheme, but is giving some time for the trust to do so.
We want the US-64 NAV to be disclosed, but will give some time. Ultimately they will have to announce it,, the official said.