The government is likely to rope in public sector banks and other financial institutions to invest in UTI Mutual Fund as part of its move to control volatility in the stocks markets.

A number of public sector banks are already gearing up to set up equity trading desks following the government's desire to ensure that the number of big players in the stocks markets increases.

UTI Mutual Fund officials said that the proposal was at a nascent stage and refused to comment on the matter.

Currently, UTI Mutual Fund manages two index funds with a total corpus of around Rs 575 crore (Rs 5.75 billion). These funds are the UTI Master Index Fund, which currently has a corpus of around Rs 350 crore (Rs 3.50 billion), and the UTI Nifty Index Fund with a corpus of Rs 225 crore (Rs 2.25 billion). The current corpus size of both these funds are inadequate to control stock market volatility.

On Monday, Union Minister of Divestment Arun Shourie said, "The UTI Index Fund should play a more active role in stabilising the market during times of volatility. The UTI Index Fund should be put to more use than it has been so far."

He also added, "Volatility in the market had to be countered and the Index Fund should be used since "it had been set up for that purpose."

The UTI Master Index fund was launched in June 1998 and tracks the Bombay Stock Exchange's Sensex.

The Nifty Index Fund launched in February 2000 tracks the National Stock Exchange's Nifty.