The Hindu Business Line : Close end redemptions may drain UTI coffers

UNIT Trust of India could face a substantial drain on its coffers and its asset base over the next two years, with a host of close end debt and equity schemes coming up for redemption, and the special liquidity package for the Unit Scheme 64 also coming to an end in May 2003.

If the bulk of investors in the Unit Scheme-64 also decide to take the exit option at the guaranteed prices offered by the UTI, the UTI could be facing total redemptions of around Rs 33,000 crore over the next 24-month period on its funds.

The close-end assured return Monthly Income Plans (MIPs) and Institutional Investor Special Funds (IISFUS) floated by the UTI in 1997,1998 and the first two months of 1999, are all due for redemption over the next 24 months. These managed a total corpus of Rs 19,104 crore on December 31, 2001.

While the UTI has guaranteed capital protection on units of all of these funds, the NAVs of quite a few of these schemes are hovering below par. There is also the possibility of shortfalls on the cumulative options of the assured return schemes, which have promised high-accumulated returns on the NAV of between 12 and 14 per cent.

Given the relatively large corpus of these funds and the lack of depth in the market for corporate debt, the liquidation of the portfolios could also carry high impact costs.

The first of the MIPs of the 1997 series is due for redemption in end of April 2002. The UTI recently approached the Finance Ministry for help with meeting the shortfall on this scheme. However, the plans for meeting the shortfall on the other MIPs that will subsequently come up for redemption, is not clear.

The US 64 managed a corpus of Rs 12,788 crore on December 31, 2001.

Though the NAV of the fund is at Rs 6.38 per unit, the bail-out package, which is in operation until May 2003, allows investors in the scheme to exit at a substantial premium to the prevailing NAV.

It may therefore be reasonable to assume that a major portion of investors in the scheme would redeem their investments on or before May 2003.

UTI is offering a repurchase price of over Rs 10 per unit to unitholders holding less than 5,000 units under the bail-out package, with the repurchase price rising to Rs 12 per unit by May 2003.

The fund is also offering to repurchase any units held in excess of this limit, at Rs 10 per unit, on May 31, 2003.

The debt funds and the US 64 apart, UTI's close end equity funds — MEP 1993, Master Value Unit Plan and Mastershare are also due for redemption in April 2003, June 2003 and October 2003 respectively.

The UTI could, of course, try to postpone a big one-time impact from these redemptions, by offering unitholders a rollover or a switchover to an existing UTI fund. Whether this succeeds would depend on the decision of investors.

Also, the SEBI has recently refused UTI's plea to rollover its recently redeemed tax saving scheme MEP 1992.

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