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UTI wants FI-sponsors to share MIP shortfall

Janaki Krishnan & Rakesh P Sharma

Unit Trust of India has taken a legal view that the financial institutions holding its capital are its sponsors and as such should make up the shortfall in any of its schemes at the time of redemption.

UTI's argument is that in common with other asset management companies the institutions have nominated their trustees on the its board, conferring the right of management on them. Industrial Development Bank of India , Life Insurance Corporation and State Bank of India (along with its associates) hold around 80 per cent of the trust's capital. It is only recently that IDBI and SBI pulled out there nominees from the UTI board.

This issue has been tossed around for quite sometime.

First it was up to the government to take a stand. The Centre, however, put the ball in the Securities and Exchange Board of India's court, saying that since the scheme was registered with Sebi, the regulator should decide on the sponsorship issue.

Sebi said the shortfall in case of MIP 97 (I) should be met by the trust's development reserve fund. But the sponsorship issue remained unanswered.

The most recent development was Sebi seeking UTI's opinion on the sponsorship front - and the trust's view is that the sponsors are the financial institutions. The government has refused to take a stand in the matter preferring to leave it between Sebi, UTI and the three institutions.

The latter have repeatedly said that they are not the sponsors as they have already floated asset management companies of their own - sponsoring dual asset management companies would be in violation of Sebi regulations.

However, UTI is of the firm opinion that whatever happens the shortfall, if any, in any of its assured returns schemes has to be made good by some entity - either the government or its stakeholders.

"If they could do it for US-64, where returns were not assured, then why not for monthly income plans where specific returns were indicated," sources said.

In the past, Sebi has made banks, who floated asset management companies, to make good on shortfalls in case of any of their schemes. But in these cases there was no confusion on the identity of the sponsor or promoter - as the promoter and the majority shareholder were one and the same.

Around five of UTI's MIPs are maturing in the current year, while the rest will mature in two-three years.

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