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UTI to have 3-tier structure; Malegam panel recommendations accepted

BS Markets Bureau

The board of Unit Trust of India, at its meeting held on Tuesday, accepted the recommendations of the Malegam Committee to restructure UTI into a three-tier structure putting it on par with other sector counterparts.

Under the new structure, the trust will have a sponsor, a trustee company and an asset management company.

The board also accepted the recommendation to offload 60 per cent of the total Rs 5.50-billion share capital of the sponsoring company to a strategic partner. The board also accepted the proposal to valuate UTI as a whole by an independent valuer.

Addressing a press briefing, M Damodaran, chairman, UTI, said, "UTI's course of action will now be guided by the acceptance of these recommendations by the Government of India. It will involve amendment in legislature, and especially the UTI Act."

It has also been suggested that the UTI Act should be totally repealed and not merely amended because there is a danger that the government may be left with residual responsibilities under the Act which would result in a public perception of continued government accountability.

The UTI board accepted the proposal wherein the sponsoring company's 40 per cent or Rs 2.20 billion worth stake will be held by the institutions which hold the initial capital of UTI of Rs 50 million and which have made additional contribution of Rs 4.455 billion pursuant to the Deepak Parekh Committee recommendations in 1999.

UTI may also look into possibilities of roping in foreign strategic partners.

Since some of the sponsoring institutions also own asset management companies which manage other mutual funds competing UTI, no single institution will be allowed to hold more than 25 per cent.

Moreover, a lock-in period of three years will be introduced for the sponsoring institutions so that they cannot transfer share to third parties or the strategic partner.

However, during the three-year period, they will be allowed to transfer the stake among themselves or sponsoring institutions.

UTI itself will be converted into an AMC which will be responsible for the management of all the schemes under the UTI umbrella. In order to make UTI accountable to the public, a 40 per cent stake in the AMC will be held by the sponsoring company and the balance 60 per cent will be offloaded to the public.

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