UTI and US-64: How India's biggest mutual fund broke (and what it fixed)

In July 2001, about 2 crore Indians found out they couldn't get their money out of the country's most trusted investment. US-64, run by UTI, had paid tax-free dividends for years at a price it simply announced once a year. No NAV, no market value of holdings. Then it stopped buying back units. This episode tells the story of how that happened. US-64 started as a debt scheme and kept adding equity, ending up close to 70% in stocks through a decade when the market went nowhere. Holdings were carried at cost, so nobody could see the damage. Dividends kept getting paid out of reserves until, by 1998, the reserves had gone negative and were eating into unit capital. The Deepak Parekh committee recommended NAV-based pricing and a cleanup. UTI got a rescue but never really moved to NAV. Then came 2001: the Ketan Parekh crash, the BSE board being sacked, the Tehelka fallout, a 30% fall in the market, and redemptions UTI couldn't meet. The government stepped in with a bailout of around Rs 14,000 crore, UTI was split up, and the new UTI AMC came under SEBI like every other fund house. We also talk about what the industry learned: publish the NAV and the holdings, never guarantee returns, take the hit instead of pretending and extending, and segregate bad assets. From there, a long run of reforms (no entry loads, direct plans, recategorisation, trail commissions) built the trust that today's 80 lakh crore mutual fund industry runs on.

Topics: - What US-64 was and why it paid "assured" tax-free dividends - How hidden losses piled up through the 1990s - The 1998 near-miss and the Deepak Parekh committee - The 2001 market chaos and the freeze on redemptions - The government bailout and the creation of UTI AMC - Lessons for today's mutual fund investors

If you enjoy thoughtful conversations on investing, mutual funds, markets and personal finance, subscribe to the Capitalmind Podcast for new episodes every week

📌 Subscribe for more data-driven investing content every week. 

🔗 Follow us:  🌐 Website: https://www.capitalmind.in  🐦 X (Twitter): https://x.com/Capitalmind_in 📸 Instagram: / capitalmindHQ 💼 LinkedIn: / capitalmindwealth-pms 

Disclaimer: This podcast is for educational and informational purposes only and does not constitute investment, tax or financial advice. Investment products are subject to market risks. Regulations and tax treatment may change. Please consult an appropriate professional before making investment decisions.