Indian Investors Rocked By Mutual Fund Move

by Carla Johnson, Investors Offshore.com

05 July 2001

Millions of Indian investors were shocked when the country's largest mutual fund, United Trust of India, announced recently that it was banning the sale and redemption of units in its flagship US-64 scheme for a six month period.

The markets fell by almost 3.5% as unsettled investors dumped shares, and the effects are expected to be far-reaching. UTI has an investor base of more than 20 million, and the US-64 scheme had a thirty seven year track record of liquidity and safety, and growing returns, factors which made it popular with a great many of the country's senior citizens and pensioners, who have been devastated by the announcement that the fund will not repurchase their units for at least half a year.

The nerves of investors were further jangled by United Trust's announcement that the cash reserves of US-64 may have 'turned negative' as a result of the recent fall in stock prices. UTI have hinted that the ban on repurchase may be removed before the six month deadline if stock market conditions improve, but experts fear that the fate of the Indian stock market has effectively been sealed by the fund's unexpected decision. The market was already experiencing huge swings when UTI dropped its bombshell, due to a ban on carrying forward transactions by paying a marginal amount to the stock exchanges, a popular practise in India.

The Indian Finance Minister Yashwant Sinha has reacted quickly to protests by investors against UTI's decision, and told journalists on Tuesday that the government is examining the issue.

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