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Govt may ask UTI to foreclose MIPs

P Vaidyanathan Iyer

The finance ministry is likely to ask Unit Trust of India to foreclose some of its monthly income plans and other schemes that offer high assured returns in the range of 14-16 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 high returns that are not in sync with market rates. "It would be in the best interest of the trust," said an official.

Sources said UTI should look into the legalese of the MIP offers made to the subscribers and check the option of ending some of the high-cost schemes. Market analysts said this should not pose any legal problems since UTI had earlier set a precedent in the case of the Rajalakshmi unit scheme.

The mutual fund has about 20 MIPs, which are still in currency with a total corpus of over Rs 200 billion. UTI assures fixed returns to investors in the MIPs backed from a guarantee by the development reserve fund.

UTI had launched several MIPs in the past five years offering returns as high as 16 per cent a year. UTI had in its offer documents assured capital protection to the investors backed by the DRF guarantee.

However, UTI has now said the DRF does not have sufficient funds to make good the shortfall in the MIPs.

According to UTI, five MIPs and one institutional investors' fund, promising assured returns, are maturing during the calendar year 2002. It has estimated a shortfall of Rs 26.32 billion, calculated as on December 31, 2001.

However, when UTI approached Industrial Development Bank of India, State Bank of India and Life Insurance Corporation to make good the shortfall under the MIPs, IDBI said it was not a legal sponsor as per the (Securities and Exchange Board of India) Sebi (Mutual Funds) Regulation 2(x) of 1996. UTI, it said, was a corporation and not a trust.

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