The Unit Trust of India is working on a proposal to offer bonds to investors in all its assured-return schemes and monthly income plans, except those in which the interest rate is set at the beginning of the year.

If the government agrees to this, investors in schemes like the Children's Gift Growth Fund (CGGF) 1986, CGGF 1999, Rajlakshmi Unit Plan (RUP) (II) 1994, RUP 1999 and the various series of monthly plans, all managed by UTI-I, will be offered bonds. The proposal covers about 17 schemes with a total corpus of around Rs 18,000 crore (Rs 180 billion).

The proposal is similar to the 6.75 per cent tax-free bonds offered to US-64 unit holders.

A senior UTI executive told Business Standard that UTI was working on the plan, though it had not taken final shape yet. The bond option was perceived to be a better alternative to foreclosing the schemes, he said.

According to the proposal, investors in assured-return schemes with tenors of 18- 22 years are likely to be offered the long-term bonds.

The coupon on these papers will be slightly higher than that on a comparable tenor government paper. The tax-free instrument will be available for trade in the market.

"The bond option will help investors use the funds purposefully," UTI executives said.

The foreclosure of UTI's Rajlakshmi Unit Plan I in 1999 was resented by investors, some of whom had challenged it in court.

Earlier, the government had considered a proposal to reset the assured-return rates and foreclose some of the monthly plans.

The objective was to reduce the government's liability from the shortfall in the assured-return schemes, but the move failed.

The monthly plans' estimated liability is over Rs 8,500 crore (Rs 85 billion), a substantial chunk of which is in the four long-term fully assured schemes.