The redemptions during April-May 2001 ... were triggered by a widely shared perception and common knowledge which was freely available and there is no reason to believe that there was a breach of confidentiality
The report does discuss at length some problems and deficiencies in the working of the UTI but it would be erroneous to conclude that these deficiencies are all pervasive. By and large, over vast tracts of its operations, the UTI has functioned well and the focus on its deficiencies must be viewed constructively with a view to bringing about improvement in its working.
The committee notes, with an element of satisfaction, the in the recent period the UTI has been undertaking a number of measures to bring about a greater degree of transparency to rectify some of the earlier deficiencies.
Investment policy
* The UTI has not as yet documented a comprehensive investment policy setting out investment/disinvestment norms, prudential norms, risk management strategies and internal controls.
* The financial powers for investment/disinvestment are vested with a single individual, viz, chairman/executive trustee.
* The UTI has not been following the committee approach with regard to investment/disinvestment decisions; it was only in march 2001, that a primary market investment committee of four senior executives was constituted to make recommendations to the chairman for investments.
* The investment/disinvestment decisions as also credit rating decisions are not subjected to any internal/external audit.
* The board has generally stayed away in the matter of sanctioning of investment. The fund managers, who operate in the secondary market, have been committing the institution to their investment/disinvestment decisions without there being any formal delegation of financial powers.
* The follow-up of investments relating to creation of securities, recoveries and NPAs has been inadequate. As observed by the statutory auditors, the decline in the net NPAs has been due to write-back of provisions and not due to any actual recovery.
* While the UTI has set up asset management committees, these are essentially advisory in nature and play no role in the investment decision process, and in any case in no way meet the requirement of separation of asset management and trustee functions.
Intra-scheme transfers
While the meeting of double coincidence of wants of various schemes through inter-scheme transfers is legitimate, in the more recent period the character of inter-scheme transfers has changed significantly from the initially conceived scheme by a zooming of transactions which cause concerns about the bonafides of such transactions and raise doubts whether this is a case of window dressing. The quantum jump in the last three years ended June 2001 is particularly worrisome as there are no independent asset management companies to safeguard the interest of investors in particular schemes. It is possible that the mechanism of inter-scheme transfers has been used to shift inter-temporal and inter-scheme profits to one set of unit holders at the cost of another set of unit holders.
At times it would appear that the transfer of scrips has been with a view to providing temporary support to one scheme at the cost of investors in another scheme. Again, such transfer could circumvent restriction on holdings in a scheme in excess of prudent limits to investment in a single company.
Transfers of scrips have also taken place when the transferee scheme was short of funds leading to creation of negative liquidity. Frequent transactions have taken place which tend to obfuscate the operations of individual schemes of the UTI.
The services of brokers were utilised for inter-scheme transfers on verbal instructions of higher authorities. This was violative of the UTI
