UTI bailout gives Centre a windfall

The bailout of Unit Trust of India in 2001 is turning out to be one of the most profitable investments the Union government has made in recent years due to the bull run in stock market.

The Good Samaritan act has given the Centre an annualised return of 30 per cent.

This easily bests the average return of 13.8 per cent seen in the Indian capital market in 2004. Even the best equity schemes of mutual funds offered a return of 16-17 per cent in the year.

The Union government pumped in Rs 3,300 crore in October 2001 into UTI in lieu of public sector shares under the Special Unit Scheme 99 in order to bail out the mutual fund giant's assured return schemes and its flagship US-64 scheme.

The value of that investment is more than Rs 6, 500 crore on Friday.

The market value of those shares at that time was around Rs 1,500 crore, but by now the portfolio has appreciated by 100 per cent.

Besides the Rs 3,300 crore, the Union government injected Rs 130 crore in March 2002 for US-64 bond payments.

Sources said UTI-1 has even paid Rs 1,000 crore to the Union government from US-64 accounts in January 5, 2005.

S B Mathur, the administrator of UTI 1 that controls assured return schemes and US-64 assets, confirmed that the Union government has made a handsome profit out of the investment in UTI.

"The government has already sold Rs 4,264 crore worth of equities from that basket. The valuation of the remaining portfolio is around Rs 2,280 crore," he said.

According to him, besides SUS99, the assets under UTI-1 is more than the liability of the undertaking.

Incidentally, the returns of the bonds and the assured return schemes is guaranteed by the union government. "The bonds (6.75 per cent tax free) come out of US 64 is financing from its own asset," he added.

However, he did not comment about the payment from US-64 to the Union government in January.

Incidentally, the proportion of equity in US 64 was around 65-70 per cent.

"It is giving a good return now," Mathur pointed out.

UTI-1 currently has three assured return schemes MIP 2000 (ii), MIP 2000 (iii) and MIP 2001.

Circles close to the development feel the government has booked the profit at the expense of the retail investors of US-64 by taking over the equity against its funds infusion at that point of time.

To be fair, investors had welcomed the government move then and cannot complain about it now, UTI sources said.