India investors await word on frozen UTI

MUMBAI, India (CNN) -- The fate of millions of investors affected by the freezing of India's biggest mutual fund may be settled early next week.

Millions of investors were stunned last week when the Unit Trust of India (UTI), India's biggest mutual-fund company, froze its largest fund, Unit Scheme-64. Investors now can't sell or buy for up to six months.

The board of the state-run UTI was set to get together Wednesday afternoon for its third day of discussions on what to do with investors. It will continue deliberations this week.

The fund has 20 million unit holders in all, including many retirees who contributed their life savings. Many assumed -- or were told by brokers -- that the government-backed fund was a sure investment.

There is mounting support to let small investors cash in their holdings. India's finance ministry has also said the freeze cannot last.

One Hong Kong-based fund manager who invests in India advocates refunding small investors, even if the fund is, as is likely, holding large losses.

"I'm not a socialist," he said. "But I can make the argument that the unsophisticated pensioner who was informed this was a risk-free investment deserves his or her money back."

Many were told they were buying "sovereign-backed" stock or the like. Most Indian investors do not realize they can buy private-sector funds, since the freeing up of the industry in 1998.

The fund manager was less charitable toward UTI's managers. US-64 has long bought and sold shares at values that have nothing to do with the underlying values of the stock that the fund held, he said.

That makes it little more than a large pyramid scheme, he said. It has little accountability, with no regulatory scrutiny, and the management company has not been well-run. "Someone should take an ax to UTI," he said.

US-64 may be split into separate debt and equity funds, according to the Economic Times.

UTI has also set up an expert panel to decide what to do with the fund, the newspaper reports.

The three-man panel of influential business figures, including R.H. Patil, former managing director of the National Stock Exchange, is slated to deliver its ideas by Friday.

The Indian government will then decide its response. The likelihood of a government bailout looms large, and India's finance minister, Yashwant Sinha, says the government is considering buying units.

UTI's chairman, P.S. Subramanyam, resigned last Wednesday over the scandal. UTI executive K.G. Vassal is now serving as chairman and is favored to take over permanently.