Mutual funds have kept their clean record in the United States, but they are getting a black eye in India. Last week the Unit Trust of India (UIT) suspended redemptions from its largest fund US-64 leading to a crisis of confidence and a brewing political scandal.

The UTI manages $12.2 billion in assets with more than $2 billion in the US-64 fund. The move led to a crisis in India's stock market and is quickly becoming a political hot potato.

The freeze on redemptions was made in response to the falling value of stocks and is set to last for six months. Soon after the decision was made, the chairman of the UTI resigned. The fund has 20 million investors and was considered one of the safer ones in the nation.

One big difference between the fund and mutual funds in the US is that Unit Trust of India is a state-run venture. It is also that nation's largest fund sponsor. Because of the crisis caused by the fund's action and its ties to the government, the opposition Congress Party has called for an investigation of the matter and the role played by the nation's finance minister.

The Congress Party is alleging that some companies were tipped off to the closing of the fund and as a result had time to pull their assets from the fund. It also contends that that the UTI kept the government in the dark about plans for the redemption freeze and held back vital facts about the fund's performance.  

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