The Hindu Business Line : Govt securities for UTI to bridge MIP shortfall

THE Finance Ministry will issue tradable government securities to the Unit Trust of India (UTI), which can be encashed by the trust to bridge the shortfall in the Monthly Income Plan (MIP) 97 (IV) scheme due for redemption on October 30, 2002.

The pattern will be followed by the Government for helping UTI raise cash to meet its commitment to investors whenever an assured return scheme is up for redemption. The Government will issue securities of varying maturities to avoid bunching of the principal amount on these securities in the future.

Last week, UTI had announced that investors of MIP 97 (IV) would have the option of redeeming their units next month either by cash or by taking the seven per cent tax-free savings bonds. UTI, in turn, will be able to provide cash to the investors by offloading the tradable government securities which would be issued to the trust shortly.

"The issuance of government securities will not only be a revenue-neutral exercise, but also minimise the pressure on the fisc in any given year since the redemption (of the principal on these securities) will be staggered over a period of time. The government will only have to fork out the annual interest on these bonds,'' a Ministry official said. Since the Government has also directed UTI not to resort to distress sale of any of its holdings to meet the redemption obligations under the MIP schemes, it will provide partial capital support in addition to just bridging the shortfall in the assured return schemes.

"The Government has given certain guidelines to UTI on sale of equity. Since the trust will off-load its bulk holdings only when it gets the right price, the Government is also committed to meeting extra liquidity requirements'', said a senior Ministry official.

UTI will liquidate only debt assets and liquid assets to meet the repayment obligations in the MIP schemes, following the Cabinet decision not to allow asset bleeding by the mutual fund. This decision is aimed at preventing an impact on the stock market in case bulk holdings are unloaded by UTI.

The proceeds garnered by UTI as and when it off-loads its bulk equity holdings will be used to meet the redemption commitments in other MIP schemes which would mature in future. "If UTI manages to maximise its realisation from bulk sale of equity at an opportune time, it would bring down the liability of the government'', an official said.

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