Discuss the nature and causes of the UTI crisis with particular reference to US-64. How does this UTI fiasco affect the investment climate in India?
Unit Trust of India (UTI) has been a profitable unit for investment in India, but some losses caused by it in last few years has raised a suspicion over investment climate. Launched in 1964, the US-64, an open-ended balanced fund, is its flagship fund. UTI decided to suspend the purchase and sale of its US-64 scheme for six months in 2001.
Due to mismanagement in purchasing of shares in communication, IT and entertainment sectors was the greatest fault by management. The Deepak Parekh Committee recommendations were not followed. The crisis exposes that the loss is due to mismanagement of fund, priority to the interests of officers and members, share brokers and industrialists in comparison to the investors.
If the UTI cannot be loyal to the interests of investors and cannot improve management, the only unit in India with public reliability will also lose the confidence which in turn would discourage people from saving, affecting capital formation.