In the current set up, they are not promoters of UTI in stricter sense, and this is the reason why the liabilities cannot be fixed on them.
As promoters in the new set up, these companies may have to take up the liabilities of the beleagured UTI which is running massive short-fall in a series of assured-return monthly income plans (MIPs) as well as Unit Scheme ’64.
A senior finance ministry official told FE that during the initial phase, the sponsoring company should have the existing associates as the promoters.
“Once it comes into force, others can join in at a later stage,” he added. Explaining the logic, the official stressed that given the current situation of the Trust, initially, it is better to have a group of promoters having understanding of the problems associated with UTI. He added that the government will talk to IDBI, LIC and SBI before taking a final decision.
On the question of asset management company (AMC), the official said that the government is yet to decide whether there will be one or more AMCs. The restructured UTI will have a three-tier set up with a sponsoring company, one or more asset management companies, and trustee.
Once the UTI sponsors are in place, fixing the onus for meeting the short-fall in its various schemes with guarantee on returns becomes easier. It may be recalled that market regulator Securities and Exchange Board of India (Sebi) recently could not ask IDBI, LIC and SBI to bail out MIP ’97, which ran a huge short-fall of Rs 617 crore, as they are not sponsors of the Trust.
UTI, which came into existence in 1964 by an Act of Parliament, faced a redemption of Rs 1,157.20 crore in MIP ’97 which matured on April 30. The Trust dipped into its development reserve fund (DRF) to make good the short-fall, which now stands reduced to around Rs 950 crore.
It will be a mammoth task for UTI to make good the short-fall in various other fully assured MIPs which will mature in the next two years. MIP ’97 (II) and MIP ’95 will be redeemed on June 30, 2002. During the calender 2002, other schemes like MIP ’97 (III), MIP ’97 IV and MIP ’97 V will mature for redemption.
There are six more such schemes like MIP ’98, MIP ’98 (II), MIP ’98 (III), MIP ’98 (IV), MIP ’99 and MIP ’99 (II) which will mature in the next two years. All the five-year assured return schemes will have to be redeemed by May 31, 2004.
In May 2003, UTI may face huge redemption pressure on account of the country’s biggest mutual fund scheme US ’64 as the assured price for units up to 5,000 held by each investor will touch Rs 12. The guaranteed repurchase price scheme will expire in May 2003 when investors are expected to flock UTI to redeem US ’64 units. For units above 5,000, UTI is committed to give Rs 10 in May 2003. MIP ’98 (II) will also mature for redemption during the same month.
US ’64 with a current corpus of Rs 12,717 crore has a net asset value (NAV) of Rs 5.84, which is way below the guaranteed repurchase price. Its NAV has, in fact, fallen to the current level from a high of Rs 6.74 in February. MIP ’98 (II) has a current NAV of Rs 5.67.