Recently the Government has come up with a bailout package for UTI. This is not the first time that a bailout of UTI has been announced. However what differentiates it from the previous bailouts is the size of the bailout and the restructuring package that came with it. Would this comprehensive package cure all the problems of UTI permanently? What does this package mean to millions of investors and what is the effect on the economy? When would UTI disassociate itself from the Government and survive on market-driven terms? Does the package give any clue as to the future direction of UTI and most importantly would the bailout be the last or would history repeat itself?

After years of indecision and two bailouts the Government of India is trying to set the country's largest mutual fundUnit Trust of India (UTI) in order. The government has come up with yet another bailout this time accompanied with a restructuring package. This bailout package aims at freeing UTI from the Government clutches and make it a market-driven entity. But it is not always that the reality in terms of things actually happening would stick to the objectives set.

UTI found itself in trouble for the first time in 1998. Arbitrary fixing of sales and repurchase of the units combined with high dividend payouts had depleted the reserves and turned them negative to the tune of Rs. 1098 cr. The Government came up with a bailout package in the form of Special Unit Scheme (SUS-1999) pumping in a huge Rs. 3300 cr. While this bailout was myopic in nature and addressed only the short-term needs, its requirement highlighted the inherent problems of UTI. The populist financial measures of assured returns with no regard for NAV and delivering the most promising dividend payments were no longer practical. Adding to the troubles along with this socialistic agenda were the political interventions in the investment decisions of UTI and also a total lack of accountability. In the aftermath of the crises came the Deepak Parekh Committee recommendations on restructuring UTI for preventing the reoccurrence of such crises. The committee came up with suggestions and the most prominent of these was to convert the US-64 into an NAV-driven scheme within the period of three years. UTI squandered an opportunity to make this transition in the height of the 1999-2000 boom when the NAV was far higher than the artificially pegged price.

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