In a significant move, UTI has decided to follow a dividend policy which would reflect the actual earning capacity of the underlying assets and income from instruments of comparable maturity and risk profile. UTI said the rate of return would be reviewed at the time of announcing the income distribution every year having regard to the returns on comparative instruments during the previous 12 months.

UTI had paid dividends in excess of its actual earnings in the past. As a result, the trust had reported negative reserves to pay 20 per cent dividend last year. With the change in dividend policy, UTI isunlikely to repeat the 20 per cent dividend on US-64 this year. UTI Chairman P S Subramanyam declined to comment on the possibility of a reduction in the dividend for the current year. ``It's too early to comment on this issue,'' he said.

While accepting the Deepak Parekh committee recommendations on US-64 and the action taken on it, UTI said it was considering a plan to make US-64 NAV-driven in three years with a gradual increase in spread between sale and repurchase prices to deter short-term investors. With the shift to NAV-based pricing and liquidation of real estate and term loan investment from its portfolio and appropriate amendment to UTI Act, US-64 would be fully regulated by the SEBI's Mutual Fund (MF) Regulations.

As recommended by the committee, the asset management company (AMC) for US-64 has also approved a fund management strategy to rebalance the investment portfolio and gradually reduce the equity percentage by divesting shares with poor future prospects, strategic sales and by investingfresh inflows into debt. UTI said with regard to the committee's recommendations on a detailed review of asset management processes, UTI is implementing an MF package for asset level and enterprise resource planning (ERP) package for liabilities side accounting.

It would be selecting professionals for undertaking business process re-engineering (BPR) assignment for investor service operations and in this connection holding discussions with Pricewaterhouse, Arthur Andersen and Mckinsey Consulting. The BPR would be completed within a period of six months, UTI said adding that a comprehensive review as suggested by the committee would be commissioned after the BPR is complete.

On the strengthening of focus on small investors, UTI said its new schemes were being designed to attract retail investors. At present small investors account for over 99 per cent of the accounts while individual investors account for 61 per cent of US-64 capital. ``Fund managers have been given final authority on responsibility anddecision making while equity research analysts have been vested with the responsibility for making recommendations. They have been also empowered to take range-bound buy/sell decisions based on the requirements of the scheme,'' UTI said.

The report said each fund manager, depending on the requirement of each scheme, can buy and sell securities either from the market or from the other schemes of the Trust on the basis of negotiations with the other fund managers. The inter-scheme transfer decisions are taken independently by the respective fund managers keeping in view the necessity of each scheme, UTI said, adding that it has already entrusted the management of US-64 to an independent fund management group headed by an executive director.

At present equity and debt portion of US-64 are managed by two independent sub-groups. In order to expand its research base and create more investment opportunities, UTI has brought in synergies between its equity research cell, investment advisory services and UTISecurities Exchange Limited. As recommended by the committee, UTI has strengthened its dealing room operations by increasing the number of fund managers and dealers from 24 to 42 in the last six months.

It has also reconstituted two AMCs for equity and debt-oriented schemes inducting professionals from outside. The Deepak Parekh committee was constituted in October last to undertake a comprehensive review of the function of US-64 to strengthen the scheme and to recommend measures for sustaining investor confidence. The report was submitted on February 25.