UTI asked to stagger SUS-99 redemption

Finance ministry says tranches should not exceed 10 per cent of the scheme's corpus at one go

The finance ministry has advised Unit Trust of India (UTI) to spread out its redemption of the underlying equity under the Special Unit Scheme-99 to tranches of not more than 10 per cent of the total corpus at one go.

The ministry has informed UTI in a missive that such an upper limit will ensure that there is no volatility in the stock market because of the sale of the equity in the SUS.

To ensure compliance the ministry has asked the mutual fund to keep it informed periodically about the sale of assets from the scheme.

In the current over heated state of the markets, the finance ministry wants to ensure that unloading large blocks of PSU shares should not create too much of volatility.

Meanwhile to ensure that UTI-I is closed down as quickly as possible, the Centre has decided to shelve the proposal to vest it with the role of Asset Management Company (AMC) to sell the residual equity of the divested public sector undertakings.

Based on the promise made in Budget 2003-04 by finance minister Jaswant Singh, to set up an AMC, the Centre was exploring the proposal to make UTI-I perform the role as it had the relevant experience to manage the sale of securities effectively.

But it is now felt that this will only prolong the life of UTI-I which is not desirable.

In May this year, the finance ministry gave UTI-I permission to sell securities under SUS-99, by giving them a one time exemption to transfer the shares underlying the scheme pledged with different banks.

The relaxation was given by the finance ministry to enable UTI-I to meet the shortfall in the redemption of the US-64 units, at the end of the month.

The one time exemption was required as the SUS-99 comprising equity and debt papers of different public sector companies was largely pledged with some of the PSU banks, and it was not possible for UTI-I to sell these papers to other financial institutions, unless this pledge clause was removed.

Subsequently the institution has extended the sale of the equity under the SUS scheme to take advantage of the high level of valuations for the PSU scrips which the stock market is now offering.

The SUS-99 corpus was estimated at about Rs 3,300 crore when it was created in 1999, by hiving of a large chunk of the PSU shares held by UTI as a separate fund by the finance ministry.

In exchange the mutual fund got financial help to tide over its then crisis. But due to the fall in the market the actual value of the scheme shrunk drastically, bit it has recovered now.

Staving off volatility on bourses

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To ensure compliance the finance ministry has asked the mutual fund to keep it informed periodically about the sale of assets from the scheme.

The ministry wants to ensure that unloading large blocks of PSU shares should not create too much of volatility.

The SUS-99 corpus was estimated at about Rs 3,300 crore when it was created in 1999.