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Thursday, Sep 19, 2002

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UTI board to mull MIP options

Shaji Vikraman
Hema Ramakrishnan

NEW DELHI, Sept. 18

THE board of the Unit Trust of India is scheduled to meet on Thursday to consider various options on bridging the shortfall in the Monthly Income Plan 97 (IV).

This scheme in which both the principal and dividend are assured is due for redemption on October 31, 2002. The shortfall between the unit capital and the market value of the assets of the scheme at maturity was projected at Rs 341 crore on June 30, 2002. The MIP 97 (1V) had a unit capital of Rs 1,141 crore as on June 30, 2002 with the market value of assets as on that date being Rs 851 crore.

Among the options the Government is weighing are extending a sovereign guarantee to help the UTI borrow from banks and institutions to bridge the shortfall, and issuance of bonds. Senior Finance Ministry officials and the UTI management had been in talks on resolving this issue and the options put forward by the Finance Ministry would be discussed at the board meeting, officials said.

According to them, the Government is fully committed to honouring the undertaking given to investors in line with the decision taken by the Cabinet recently. "Any investor redeeming the MIP 97 (1V) will receive the principal in cash," a senior official said.

For the assured return schemes of UTI, which were redeemed in June and August this year, the Government provided a guarantee of Rs 1,000 crore to the trust to honour its commitment to investors.

The guarantee was provided then against the assets and cash inflows to the UTI's Development Reserve Fund (DRF) and enabled the mutual fund to borrow from banks at fine rates to meet the repayment obligations. The guarantee was subject to the condition that the mutual fund would sell off some of its assets in the DRF within six months.

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