For the year ended June 30, 1998, the cumulative negative reserves for MIPs in 1997 was Rs 277 crore. The negative reserves have, thus, risen by a whopping 43 per cent in just one year to Rs 397 crore.

The first MIP for 1997 was launched in February with a coupon of 14 per cent, payable monthly and 14.93 per cent payable cumulatively. The scheme romped home with a collection of Rs 1159 crore. In the second MIP for 1997 in April, the coupon was maintained with collections a shade lower at Rs 1149 crore. However, this was the time when interest rates had dropped after RBI's slack season credit policy and a number of assured return schemes were caught off-guard. With a collection of over Rs 1100 crore and a coupon of 14 per cent (payable monthly), UTI could have encountered problems in deploying such a huge sum at over 14 per cent.

In fact, for MIP '97 (I) and II, reserves between 1998 and 1999 turned further negative by 52 per cent and 47 per cent, respectively. For the third MIP of 1997, the coupon was cut by 100 basis points to 13 per cent for the monthly option while it was 13.8 per cent for the cumulative option. Collections dropped in this scheme to Rs 795 crore. In the fourth MIP, the coupon was further cut by 50 basis points to 12.5 per cent while collections went up to Rs 900 crore.

However, in both these schemes, there has not been a very steep rise in negative reserves vis-a-vis MIP '97 (I) and (II). For instance, in MIP '97 (III), negative reserves went up from Rs 46 crore to Rs 52 crore while those in MIP '97 (IV) rose by Rs 6 crore to Rs 33 crore.

In the last MIP for 1997 launched in November, the coupon was the lowest for the year at 11.75 per cent for the monthly option. The scheme could rake in only Rs 560 crore. Besides a MIP fatigue, the drop in collection was attributed to the steep fall in assured rate of 225 basis points from 14 per cent at the beginning of the year to 11.75 per cent. In MIP '99 (II), currently open for subscription, the coupon is lower at 10.5 per cent for the monthly option.

``In 1997, we saw one of the steepest fall in interest rates and hence, not only UTI but a few other assured return schemes were also caught on the wrong foot. Investors also poured money since they were able to lock in money at very attractive rates for five years. While schemes like MIP tieup debt instruments in advance at a particular interest rate, MIP (II) could have faced problems due to a sudden fall in interest rates. Exposure to equities could also be responsible to an extent for the reserves going down,'' says an analyst. ``With such high coupon even as interest rates were going down, the fund managers at UTI seem to have deployed money in low quality instruments which has led to a rise in provisions for doubtful assets,'' says another analyst.

However, negative reserves may not assume an alarming proportion for MIPs although NAVs in most of the options is below par and the assured payout is being met out of capital. ``MIPs usually invest in instruments of maturity period of 5 to 5-1/2 years and hence, they get back the invested sum on maturity. During the tenure of the scheme, however, the valuation models adopted by the fund may cause variations. To that extent, the negative reserves are notional,'' says an analyst.

While the redemption in MIPs is at par (Rs 10), repurchase after 3 years is at NAV. However, most of the investors stay put till redemption and hence, the funds do not need to sell mid-way to pay investors.