THERE SEEMS to be a concerted effort from various quarters to paint the Unit Trust of India in black. Suggestions that things would not have come to such a pass if UTI had been privately owned are being subtly made. But private mutual funds, barring a few with oversees connections that stepped in a few years ago with great fanfare have shown precious little by way of performance. Hence, ownership cannot be a factor while assessing the present situation in UTI.

Having said that, one has seen successive governments regarding the capital market as the true barometer of their budgetary wizardry. This thought influenced institutions like UTI to change the basic composition of schemes like US-64 from being essentially debt oriented to their being essentially equity based.

As for investors from the corporate world, since they were governed by the accounting standards that valued their holdings at the lower of cost or market value in most cases, both of which were above the underlying NAV - it suited them for the repurchase price of the units to be placed at values above the perceived NAV.

The Reserve Bank of India, the regulator for commercial banks, prescribed the market quotes to be the basis of valuation rather than the NAV for the units held by the banks. The repurchase price was considered equivalent to the market rate.

One hears that many a battle went on in the board rooms of banks when professionals preferred units being valued at their NAV but banks got away because of RBI's prescription. In essence, it suited both banks and corporates for the repurchase price to be far removed from the perceived underlying NAV of the portfolio. Again, it should be noted that it is the repurchase price that indirectly determined the issue price.

True, there is no other instrument in the market that can guarantee liquidity, decent return, capital appreciation and safety as attempted by US-64. On the other hand, US-64 should actually be looked at as being similar to index futures. US-64 in the past protected the investor from the problems of bad delivery and fake certificates. It also allowed the small investor to own, at least indirectly, scrips which he could not afford on his own. Besides, it has high hedging effectiveness without the investor having to be a major player in the market. While it would have been in his interest to have the units quoted at their NAV, as seen earlier, it did not suit the banks and the corporates. His voice was therefore a cry in the wilderness.

Even after the 1998 imbroglio, UTI continued selling repurchasing units far above the NAV, akin to certain fly-by-night NBFCs which used the moneys from fresh deposits to meet the matured ones. That such a situation was allowed to go on should come in for closer scrutiny, along with matters like Cyberspace.

There has also been talk of UTI coming under a regulator. Regulators in the Indian context go in for a large number of prescriptive rules which kill financial innovation. Further, the attention gets shifted from risks to rules. Such prescriptive rules also have a tendency to give the impression that they are necessary, sufficient, reliable and more importantly desirable - none of which is true.

The trouble now is that UTI may move to another extreme - what Lewellyn describes as ``excessive efforts at internal compliance for the fear of being challenged by the regulator.'' Such a move if made would be far more disastrous to the organisation.

Being easily the most attractive of UTI's schemes, US-64 was used time and again to mobilise funds, stretching the limit perhaps too far. That was perhaps one of the problem areas, having accumulated an unmanageable corpus of Rs. 70,000 crores in the aggregate.

The media too failed in their duty. Timely alerts would have provided information to small investors and at the same time would have served as brakes to the management too. With corporates and banks pulling out after smelling trouble, the media, which is largely corporate controlled, should have warned small investors but that was not to be.

Thus, the story of US-64 is one where the Government, the management, the opposition and the media - all failed to act in time. To blame the scheme for its inaction or the organisation is to do gross injustice to the scheme itself.

To despair is easy, to decry is easier, to sow seeds of doubt is the easiest but US-64 requires none of these; what it requires is support and sustenance in the interests of the millions.

The new chief should be given the freedom and support to bring back the scheme on its rails.

P. S. V. Chari & P. S. Narasimhan