Analyze the steps taken by UTI to restore investor confidence in US-64. Comment briefly on the efficacy of these steps.

With the negative reserves of the US-64 and the huge damage to its image, it was mandatory for UTI to take some measures to restore the investors confidence in the US-64. Hence various steps were taken: Formation of a review committee: With the declining image and negative reserves of UTI, it was high time for UTI to restructure the US-64 portfolio and review its asset allocation policy. Hence, a committee under the chairmanship of Deepak Parekh, chairman, HDFC bank was formed to review the working of the scheme and recommend measures for bringing more transparency and accountability so as to revive the position of the US-64. This proved to be a fruitful step as the US-64 could actually revamp. However, the efficacy of this step can be doubted as the recommendation like making the dividend tax free was doubted by the investors. Launching of a new scheme- SUS-99: It was introduced by program of the government of India to bail out UTI. It was targeted to help US-64 improve its NAV by an amount, which was the difference between book value and the market value of the PSU holdings. The government bought the SUS-99 at the face value of 4810crore thereby increasing the NAV of the US-64 through reduction of risky portfolio and non growth stocks. However lack of accountability and outside intervention from political parties could be seen in the investment decision of the UTI. Fresh fund injection to strengthen capital base: Core promoter infused fresh fund of about 500 crore so as to bridge the reserve deficit and strengthen the capital base of the scheme. This was effective as the UTI was able to purchase some growth stocks which was necessary for reviving the portfolio performance.

Tax free dividend and focus on retail investors: The US-64 dividend was made tax free for 3 years from 1999 so as to control the redemption and attract the retail investors. However, the strategy did not work out as most of the investors were senior citizens and they did not fall under the tax bracket. However, the corporate houses could achieve the benefit of tax exemption through huge investments. Restructuring the organization: UTI was restructured with the addition of the 5 additional trustees who were given more responsibility and authority for performance evaluation of all schemes, marked-to-market valuation of assets and evaluation of performance benchmarked to a market index. Further, independent fund management group was looking after the US-64 management and also a research cell was formed for

market analysis and research reports. UTI hence became proactive in the fund management with sub groups looking after the debt and equity portion. The restructuring was beneficial as UTI was able to comply with the rules and the investment norms laid by UTI, regularly review the performance of the scheme and guide the future managers on the future course of action. Restructuring the portfolio: The new growth stocks like the Satyam Computers, NIIT and Infosys were added into the portfolio while the underperforming PSUs were offloaded. Also a major step was taken to reduce the investment in the commodity stocks. Finally, UTI could enjoy the benefit as these stocks performed well in the BSE and Sensex.

Making US-64 NAV driven scheme: Initiative to turn US-64 into NAV driven scheme was taken so as to increase the spread between sales and repurchase price. This is the foremost important step as the NAV driven price determined by the market forces i.e. demand and supply and the underlying assets. Hence this reflects the true price in the market thereby reducing the chances of fraud. Also it adds transparency to the functioning of the UTI which was formerly missing.