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Rs 50 billion support sought for US-64

P Vaidyanathan Iyer in New Delhi

The Unit Trust of India has approached the government for a Rs 50-billion fund support to bail out its flagship US-64 scheme.

Senior finance ministry officials said that UTI had estimated the required financial aid based on US-64's net asset value as on June 30, 2002. Moreover, UTI has assumed that subscribers to US-64 will opt for redemption by May 2003.

The net asset value of US-64 on June 30, 2002 stood at Rs 6.40 per unit. UTI refused to comment on the issue.

Officials said the ministry was not convinced about UTI's assumptions and had sought clarification from the mutual fund.

"It is possible that the markets will rebound and the net asset value of US-64 will improve," a senior official said. Further, it was unlikely that the investors would exit the scheme next year, he added.

Officials in the ministry said UTI had also been asked to explain how it would meet the redemption pressure on its assured-returns schemes in the coming months.

The government's Rs 10 billion guarantee would see UTI through its requirements only till the end of August, they said.

According to the officials, the government had already committed to pay the difference between the net asset value and the special repurchase price as per a scheme announced by UTI last year.

The special scheme rewards unitholders by offering an incremental 10 paise every month till May 2003, when the trust will pay Rs 12 per unit.

Officials said UTI would be provided with the necessary shortfall amount in the next three supplementary demand for grants. In the first additional demand this year, the finance ministry gave Rs 5 billion to UTI exclusively for US-64.

For the year ended June 2002, the Rs 124.47 billion scheme had borrowings of Rs 54.619 billion which had been used to fund the investments.

While the fund reported negative reserves of Rs 44.764 billion, its provision towards non-performing assets as on June 30 this year stood at Rs 12.062 billion.

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