Mumbai: India’s fourth largest mutual fund (MF), UTI Asset Management Co. Ltd, or UTI AMC, has shared key details about investors with its agents and distributors in violation of Securities and Exchange Board of India (Sebi) norms.

UTI AMC, as a service provider for SUUTI (Specified Undertaking of the Unit Trust of India), has access to the names, addresses, and holdings of the investors in UTI’s erstwhile assured return schemes (ARS) and passed them on to its hand-picked agents. The objective of this exercise, which started in 2007, was to allow these agents to target investors who were about to redeem the bonds that they had been offered by the government as part of the UTI bailout in 2003 and get them to invest in MF schemes managed by UTI AMC.

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According to Sebi norms, an intermediary is not allowed to divulge to anybody any confidential information about its clients/investors without their prior permission, “except where such disclosures are required to be made in compliance with any law for the time being in force".

UTI, India’s oldest MF, crumbled under the burden of ARS and was split into two entities—UTI AMC and SUUTI—in 2003. All ARS of UTI’s flagship US-64 plan were transferred to SUUTI. In lieu of their investments, the unitholders of these schemes were issued three sets of government of India bonds maturing in April 2009, February 2010, and March 2010.

Select distributors of UTI AMC have been given lists of hundreds of bondholders through its regional offices across India and offered hefty commissions for converting the redemption proceeds of bonds into UTI MF schemes.

UTI’s chief marketing officer Jaideep Bhattacharya signed on letters to bondholders soliciting a switch to one of its schemes at least two months ahead of the maturity of the bonds. Some of these UTI schemes were UTI Children’s Career Balanced Plan, UTI Mastershare, UTI Dividend Yield Fund, UTI Opportunities Fund, and UTI Bond Fund. Mint has reviewed a copy of the letter.

Solicitation per se is not a violation of Sebi norms, but following it up with sharing confidential information of investors with distributors for mopping up money is. Such information is meant for meeting the routine service requirements of the SUUTI bondholders.

“If it’s proved, it is a serious violation," said a senior Sebi official, who did not want to be named.

Bhattacharya of UTI AMC had last week told Mint, “It is highly unlikely that we have shared the customer data with unrelated agents."

In an email response to Mint, a UTI AMC spokesperson said: “UTI AMC had never solicited any bondholder to switch their investments into its mutual fund schemes both premature and at the time of redemption. In fact, investment into the schemes of UTI mutual fund was an option given to the investors, which was purely voluntary and thus there was no compulsion whatsoever for any bondholder to invest into the schemes."

At least three distributors told Mint that they were given the list of bondholders and the details of their investments by UTI AMC in its attempt to convert the redemption proceeds to UTI’s MF schemes.

Vinay Dhoot, one of the distributors based at Tilak Nagar, Nagpur, said he managed to convert at least Rs50 lakh worth of bonds into UTI MF schemes. “I was one among the four-five IFAs (independent financial advisers) in Nagpur who were given a common list of 300-400 such bondholders’ names, addresses, amount of investments, etc. I did not know any of the customers in the list. So I started sending them emails and tried to get in touch over phone. I managed to convince 40-50 bondholders to switch their investments to UTI schemes."

According to Dhoot, UTI offered him up to half a percentage point higher commissions for such conversions.

Apart from higher commissions, UTI AMC announced various awards for distributors converting redemption proceeds into UTI schemes. If an IFA of UTI AMC managed to convert Rs10 lakh worth of US-64 bonds into any of UTI’s existing schemes, he was to be awarded a 5g gold coin. The incentives ranged up to 40g of gold for conversion of Rs50 lakh worth of bonds. Those who managed to convert Rs60 lakh were entitled to a ticket to Italy, and those who brought Rs1 crore or more got two tickets.

Madhu Giri, 49, a Nagpur-based lecturer, said he was perplexed when a stranger claiming to be a UTI agent came and approached him about his investments in US-64 bonds.

As per the Sebi (Mutual Funds) Regulations, 1996, the trustees of an AMC are required to ensure that the fund has not given any undue or unfair advantage to any associates or dealt with any of the associates of the AMC in any manner detrimental to interest of the unitholders.

“My father had purchased US-64 units in 1964. In 2001, these were automatically converted into tax-free bonds. These bonds were due for maturity in 2008. But six months before the maturity date, an unknown UTI agent approached me. I was surprised how he knew the details of my investment," Giri told Mint over the phone.

“I later switched to UTI Infrastructure Advantage Fund. Today my investments are less than the face value of Rs1.5 lakh," Giri added.

Several investors such as Giri have been wooed into converting their risk-free bond investments into equity schemes, where risk is higher.

“The agents were making merry as the proceeds were usually pushed into closed-ended schemes, which gave commissions of up to 8.5%," said Ranjit D., another investor who had converted his father’s investments into a liquid fund.

According to SUUTI data, US-64 bonds worth around Rs7,660 crore have been redeemed, including conversions of around Rs848 crore into UTI’s equity schemes.

ARS bonds worth Rs4,250 crore have been redeemed so far, with around Rs237 crore being switched to equity schemes of UTI.

According to some market participants, SUUTI’s move to share the data solely with UTI AMC was an act of stifling competition with other fund houses. “Ideally, a public invite should have been given to other fund houses too, while sharing the data of all the bondholders, but it was a conscious decision of the SUUTI board to give preference to UTI AMC for servicing the bondholders. It could have been given to companies like SBI Mutual Fund or LIC Mutual Fund as they too had trusted brands, but only UTI was selected as it had experience with such customers," said a senior SUUTI official, on condition of anonymity.

After UTI was split into two, under an arrangement UTI AMC is to provide service to the unitholders of the US-64 bonds and other ARS schemes and following this the AMC got access to the investor data.

The total value of US-64 bonds was recorded at nearly Rs8,100 crore and the ARS bonds were valued at Rs5,000 crore. While a few other fund houses and insurance companies, too, made attempts to attract the SUUTI customers for converting their proceeds into some of their schemes, UTI AMC had an advantage over them as it had an access to such customers.

Graphics by Yogesh Kumar/Mint