Web of Financial Scandal

August 18: The recent arrest of P S Subramanyam, chairman Unit Trust of India, has sent shock waves through the country, among the 20 million people who had invested their lifetime savings in India’s oldest public mutual fund company. What exactly happened?

A mutual fund company has one main function: to take in or mobilise people’s savings and invest them on their behalf, to maximise the returns. Most of us put our savings in banks. Banks are seen to be solid and safe but they do not give more than 9 per cent returns (interest). Mutual funds, on the other hand, are attractive because they give higher returns or interest on the savings.

And since UTI is a government-owned mutual fund, it has always been seen as a safe investment avenue by middle class professionals and those retired from service.

UTI’s most popular scheme was Unit 64, which was started in 1964. And for a long time, Unit 64 gave a minimum return of 13 to 14 per cent per annum (annually), on the savings invested by people. The mutual fund normally invested in shares of companies and “fixed income instruments” like government bonds, National Savings Certificate and Reserve Bank of India bonds.

In recent years, the trend has reversed. The savings of people who had invested in UTI, fell below the original value. That is, if people had bought units worth Rs 10,000 some years ago, instead of growing, the value of their savings fell to Rs 8000. Because the value of its units fell below the original price, UTI’s actions became controversial. How did it happen, was the question asked.

The reason is that UTI had made unwise investments in a large number of software and technology sompanies whose shares collapsed in the last one year. UTI’s losses were passed on to its investors. But how did that happen? The controversy is centred around claims that the UTI chairman worked hands in glove with some politicians to invest in software companies, many of whom did not have good credentials. In fact UTI’s internal research cell had advised against investing in such companies. The companies have disappeared and their owners have been arrested. One such company is Cyberspace Infosys, whose owner Arvind Johari, too, has been arrested.

The million dollar question is: where did the savings go?

What is the extent of loss suffered by the ordinary investor? In the last one year, UTI’s total savings was Rs 65000 crores in January 2000. In August 2001, the figure has dwindled to Rs 56000 crores. A huge amount of Rs 9000 crores has been eroded from UTI’s corpus. It has been eroded by the fall in stock market prices of the software and technology companies…

Embarrassed by the scandal of a government owned mutual fund, the government has set up a Joint Parliamentary Committee to probe the affairs of UTI and investigate how big brokers may have manipulated UTI to suit their ends.

498 words | 5 minutes
Readability: Grade 9 (14-15 year old children)
Based on Flesch–Kincaid readability scores

Filed under: world news
Tags: #india, #software, #technology

You may also be interested in these:
Simputer: The Low-cost Computer
Report cards
The Day Mother raised the Flag
More fuel to the CNG fire
Counting the world in different ways