Restructuring UTI: The Missing Dimension

According to press reports, the Unit Trust Of India( UTI), is to be restructured and split into two organizations. The restructuring has been considered necessary for achieving a Mevel playing field' in the mutual fund industry. There also has been a persistent demand to subject UTI to regulation and inspection by the now empowered Securities and Exchange Board of India (SEBI). The Government, reportedly, is of the opinion that, if the emerging mutual fund industry is to be meaningfully regulated, then UTI, also, will have to be subjected to SEBI regulation. The need to subject UTI to regulation by SEBI is indisputable. However, the rationale for splitting UTI is unfathomable. It is irreconcilable with our current efforts to adopt a more market oriented economic regime. Fundamentally, in the new economic framework, the belief is that the attainment of a level playing field is achieved better by market forces than by legislative intervention. The proposea step, thus, runs counter to the efforts to create a more market oriented economic environment. The proposed legislation, which would result in pruning down the size, and limit the scope, of operations of UTI, will deny UTI of its major competitive advantages - of both size and scope. At a time, when, under the current reform programme, large Foreign institutional investors are being actively wooed to participate in the Indian capital markets, pruning down the size of UTI will cripple it. The break up of UTI would only worsen the xlevelness' of the playing field, purportedly the primary objective behind the planned amendment to the UTI Act. Importantly, the split would be detrimental to the interests of the large body of its investors, especially the small investors. The unseemly controversy over whether UTI should be subject to SEBI regulation or not has camouflaged a more fundamental need that of a need to carry out an internal restructuring of UTI. Its present structure is, prima facie, dysfunctional. It does not achieve a fit with its product-market strategy. Over the years, UTI does not seem to have refashioned its structure with the change(s) in its strategy. Its ambitious plans of growth are unlikely to fructify as planned, unless, it restructures itself. Further, analysis of information available in the public domain reinforces the need for an internal restructuring in order to safeguard investor interests.