Financial Daily from THE HINDU group of publications
Monday, Feb 24, 2003
Financial Daily from THE HINDU group of publications Monday, Feb 24, 2003 |
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Mutual Funds Markets - Mutual Funds Delay in guidelines to avoid `conflict of interest' — UTI, sponsors mutual investments at standstill Sarbajeet K. Sen
NEW DELHI, Feb. 23 THE problem of `conflict of interest' between UTI-II and its four institutional sponsors is taking an interesting turn. With the Government yet to come out with the proposed guidelines to avoid possible future conflict of interest as pointed out by the Joint Parliamentary Committee (JPC), market transactions between UTI-II and its four sponsors are coming down to a trickle on fears of being caught on the wrong foot once the norms are announced. It is also being feared that unless the Finance Ministry comes out with the guidelines soon, both UTI-II and its sponsors - Bank of Baroda, State Bank of India, Punjab National Bank (PNB) and Life Insurance Corporation (LIC) - might miss out on some of the more attractive investment opportunities that are being thrown up during the run-up to the Budget and the possible rally in stock prices that is being forecast in the immediate post-Budget scenario, especially in the banking sector. "We are having to exercise utmost caution in making investment in each other's shares and schemes. We feel that it is better to lay off for some time as none of us want to be held responsible for being on the wrong side of whatever the future guidelines may hold," a top official associated with one of the participants in the formation of UTI-II said. He said that already some of the better investment opportunities are being given a go-by. "The PNB scrip, which was offered in the IPO at Rs 31 some months ago, is now ruling at over Rs 80 (Friday's closing at BSE being Rs 88.10). Why should one be denied of investing in the scrip?" an official asked. He pointed out that similar rally is being witnessed in the shares of both SBI and BoB which have been rising in recent days on news of possible major announcement relating to FDI in the banking sector in the Budget. Moreover, a rally in the stock market could see a major bloating of the net asset value of scheme of UTI-II which could also be a good investment opportunities at present for the sponsors who are now having their hands tied, the source said. UTI-II, which houses all the NAV-based schemes of the erstwhile UTI, formally came into existence from February 1. All other assured returns schemes as well as US-64 have been transferred to UTI-I in the bifurcation process. Pointing out the possible conflict of interest between UTI-II and its sponsors, the JPC said that since all the four institutional sponsors have their own mutual fund subsidiary in operation, there could be a possibility that investments that are made may be construed as not being in the best interest of the players and other investors. It has been later conjectured that even if there are directors and trustees in UTI-II who are independent of the sponsors, whether investments between the entities, especially larger transactions that could push up the prices of the scrip or the unit, could be construed as an unacceptable practice.
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