Over the past few weeks, the joint parliamentary committee (JPC) has been reporting on violations perpetrated by the Unit Trust of India (UTI). Every day the business dailies report a new irregularity or violation of regulations, each more stunning than the previous one.

With the string of revelations being unfolded by the JPC, one can't help but ponder on whether UTI ever did go by the book. It would have made JPC's task far easier if it was meant to simply report the financial regularities and consistencies by UTI rather than report on the inconsistencies and irregularities.

We have mentioned below just some of the revelations thrown up by the JPC.

1. Investments with imprudence written all over them. The number of duds in US-64's portfolio were (and are) astonishingly high. Sure every fund has a few of them, but US-64 was filled with them. One of the revelations of the Tarapore committee was that UTI lost between 19-97% of its investment value in just 19 companies in 2001 itself! The finance minister will no doubt still claim that US-64 was a problem fuelled by the markets rather than imprudence.
    

2. UTI often ignored the recommendations of its equity research cell and invested in duds nevertheless. This point was well highlighted during the Cyberspace Information fiasco in June 2001 and is even more acutely underlined by the latest recommendations.
    

3. UTI flouted disclose norms and did not report relevant portfolio-information in its annual report.
    

4. Its norms for valuation of securities violated SEBI guidelines. This distorted NAV (net asset value) calculations. NAVs are the one figure that investors look at most while entering/exiting a fund, something like the stock price. By manipulating the NAV, its anyone's guess what kind of havoc a fund can wreak on its investors (existing and potential).
    

5. It was making investments based on ratings of its own internal research cell rather than a SEBI-authorised credit-rating agency. Something like a high school student deciding his own grades so that he can consider himself Pass while he has failed. That explains why UTI's debt paper was of such poor credit quality.
    

6. Investing above the 10% (of net assets) limit was commonplace for UTI.
    

7. SEBI disclosed that UTI did not adhere to most SEBI-framed regulations and followed its own internal regulations, despite its commitment to become SEBI-compliant. According to SEBI these regulations when flouted by other private funds were viewed most critically, but since UTI did not come under SEBI's purview it could not do anything. UTI exploited this opportunity most opportunistically.
    

Indeed the list is long and we have highlighted only a few irregularities. It is clear from the list that UTI is no mutual fund for the larger good of the public. That's just a claim. It's more of a venture run on its own terms and conditions for the benefit of a private few.

What is really interesting to know is whether the ministry of finance was all along aware of this. The blame for UTI's problems must rest squarely on the finance minister's shoulders. That is where the buck stops. The finance minister can well be smug about posting GDP growth in excess of 5% and talk of a Hum Aapke Hain Kaun in his budget speech. But given that the budget bill towards US-64 could be pushing Rs 100 bn or more, the GDP growth could have been higher and the deficit lower.

 

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