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Wednesday, Apr 10, 2002

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SEBI to decide on UTI schemes shortfall issue

Shaji Vikraman
Hema Ramakrishnan

NEW DELHI, April 9

THE Government has left it to the Securities and Exchange Board of India to take a view on whether any shortfall in the assured return schemes of the Unit Trust of India has to be bridged by the sponsors of the Trust.

Since the assured return schemes like the Monthly Income Plans (MIPs) launched by UTI in 1997 and onwards were approved by SEBI, the regulator should take a view on whether or not the onus of making good any shortfall rested with the sponsors, senior Government officials said.

Some of the original contributors to the initial capital of the UTI have taken the stand that they are not the sponsors of the UTI. It is in this context that the SEBI's views assume importance.

"SEBI has to give its determination on the issue and we are awaiting their views now,'' a senior Government official said.

The contributors to the initial capital of UTI aggregating Rs 5 crore include IDBI, SBI, RBI, LIC and Syndicate Bank.

The first of the MIPs launched by UTI in the 1997 series is due for redemption later this month. The outstanding unit capital on MIPs and Institutional Investors Special Funds alone was estimated to be close to Rs 19,000 crore at the end of December 2001. The shortfall in the first of the MIP scheme 1997 which is due for redemption later this month is estimated to be only around Rs 200 crore, according to Government officials.

The Government reckons that since the Trust's flagship scheme - US 64 was not under the regulatory purview of SEBI and the threats posed by systemic risks, there could at least be a justification for intervention and support. But perhaps not so in the case of schemes launched later with the approval of the capital markets regulator. In the past, banks such as Canara Bank, Indian Bank and Andhra Bank, besides LIC and GIC, had to cough up a substantial amount running into crores of rupees to make up for the shortfall in some of the assured return schemes floated by their mutual fund arms.

In their role as sponsors, these banks were forced to fulfil their commitment to unit holders of schemes floated by their mutual fund subsidiaries. Canara Bank was in fact forced by the Government to fulfil its commitment as a sponsor of the Canbank Mutual Fund and ended up shelling out over Rs 900 crore a few years ago.

Considering the likely shortfall in some of the assured return close-ended schemes, one option for UTI could be to dip into its Development Reserve Fund (DRF). The DRF has a corpus of close to Rs 1,600 crore.

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