Financial Daily from THE HINDU group of publications
Wednesday, Aug 28, 2002
Markets - Mutual Funds
Addl Rs 1,400-cr guarantee for Unit Trust's MIP 97
NEW DELHI, Aug. 27
THE Finance Ministry is set to provide an additional guarantee of Rs 1,300-1,400 crore to Unit Trust of India (UTI) to help bridge the shortfall in the Monthly Income Plan (MIP) 97 (3) scheme due for redemption in October this year.
The guarantee would be over and above the Rs 1,000-crore guarantee already provided to the trust in June to honour the commitments to investors in MIP schemes maturing in June and August this year, said official sources.
The guarantees are against the assets and cash inflows to UTI's Development Reserve Fund (DRF) and enable the trust to borrow from banks at fine rates to meet its repayment obligations under the schemes. It was subject to the condition that the mutual fund will sell off some of the assets in the DRF within six months. This time around too, the guarantee would be subject to certain conditions.
Of the 14 MIP schemes, there are nine schemes in which both the principal amount and annual dividend are assured. In the five other schemes, only the principal at maturity is assured and dividends are to be reset annually.
At market prices as on August 8, the shortfall in all the assured return schemes had been projected at Rs 20,000 crore, said a senior official.
Besides the liability on the assured return schemes, the Government will be forking out around Rs 6,400 crore under the US-64 scheme to bridge the shortfall between the assured repurchase price and the NAV.
The bailout package for US-64 will be either through direct cash infusion or issuance of bonds that are tradable in the secondary market. Officials said that a final decision on bond issuance was yet to be taken, given that UTI would prefer direct cash infusion.
"With a clear idea of the shortfall in all the schemes and the exact cash flow position, the Finance Ministry will seek Parliament's approval for the additional fund infusion for the US-64 scheme in the ensuing winter session," said a senior official.
In fiscal 2002-03 (April and May 2003), the Government will have to fork out an estimated Rs 5,000 crore for the US-64 scheme. It has already provided direct cash infusion of Rs 800 crore (Rs 300 crore in the final supplementary for 2001-02 and Rs 500 crore in the first supplementary demand for grants in 2002-03). Another Rs 500 crore will be provided during the course of this fiscal.
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