Search the Internet          Tips  Sites: Finance, Investment

Ministry asks UTI to foreclose some MIPs

P Vaidyanathan Iyer in New Delhi

The finance ministry has asked the Unit Trust of India to foreclose about a dozen assured return schemes including monthly income plans.

Presently, UTI has about 20 assured return schemes which have a total corpus of about Rs 18,000 crore (Rs 180 billion).

The foreclosure of MIPs was discussed at the group of ministers' meeting held last week. Some of these schemes offer returns as high as 16 per cent a year.

According to finance ministry sources, it does not make sense for UTI or any institution to continue with schemes offering such unsustainable returns.

The finance ministry is of the opinion that funds which are due for redemption during UTI's current financial year could be spared from foreclosure.

The funds maturing after July 2003 - which number about a dozen - should be foreclosed, official sources said.

They said the UTI should look into the legal aspects of foreclosure. They, however, said it would not be a problem to go ahead.

"There has been a precedence in that the UTI had foreclosed the Rajalakshmi Unit Scheme. It had also reset the dividend on the Children's Growth Gift Fund from 14 per cent to 12.5 per cent a couple of years back," said a source.

The GoM also discussed selling the MIPs to private players by inviting bids as an alternative to foreclosure. Under the proposal, bids would have been invited from the private companies quoting the amount of government support they would require to see the scheme through. However, this proposal did not find favour with the GoM.

UTI had launched five MIPs in 1998, two in 1999, three in 2000 and one in 2001.

However, it has now decided not to launch any assured return plans. Most of the MIPs have a corpus ranging between Rs 400 crore (Rs 4 billion) and Rs 600 crore (Rs 6 billion) each.

UTI has in its offer documents assured capital protection for the MIP investors backed by the development reserve fund guarantee.

The problem arose after the trust said the DRF did not have sufficient funds to make good the shortfall in the MIPs. The Centre subsequently provided a Rs 1,000-crore guarantee to the fund to raise funds and meet the shortfall.

Powered by

ALSO READ:
The UTI Crisis
More Money Headlines