Mumbai: Close on the heels of the Malegam Committee recommending splitting up of UTI into three separate entities, the Tarapore Committee continues to probe into what went wrong with Indias largest mutual fund.

Set up in July this year by Finance Minister Yashwant Sinha to independently conduct an enquiry into the issues of insider-trading and commercial decisions, the Tarapore Committee has primarily blamed UTIs decision-making process for most of the ills that have plagued UTI in the past.

The three-member committee - former RBI deputy governor S S Tarapore, National Institute of Bank Management chairman M G Bhide, and former CBI director R K Raghavan - is expected to submit its report to Sinha by the end of this week.

Three major flaws in the decision-making process cited by the committee are:
1) Disregard for the in-house research cells recommendations.
2) Too much power in the hands of the UTI chairman, and
3) An opaque decision-making process.

One simple example is that of investing in unlisted companies. Sampling investment decisions over the decade, the panel has reportedly discovered that UTI chose to take the private placement route to invest in over 1,000 unlisted companies, either in their equity or in their non-convertible debentures.

Clearly, the panel had two things in mind while making this observation:
1) Exit options are difficult in unlisted companies because their equities are not traded on the bourses. In most cases there are buyback options with the promoters or/and one has to wait for listing before opting to exit.
2) In the absence of any trading in the secondary markets, one has to rely on valuations made by promoters and/or independent experts before buying into the equity.