MUMBAI, November 7: A lower interest rate regime, consequent upon the busy season credit policy of the Reserve Bank of India (RBI), has seemingly has its bite into the assured income schemes of the mutual funds. Following this, the mutual funds are now having their second thoughts on continuing with their assured income schemes. In fact, the LIC Mutual Fund (LICMF) and the Unit Trust of India (UTI) have preferred to close their respective child growth schemes.

While LICMF and UTI have decided to close down their respective child growth plans to investors, IDBI Mutual Fund (IDBIMF) has done the opposite. It has come out with an initial public offer of a child growth scheme under its I-Nit series, Child I-Nit '97.

The scheme aims at providing a lump-sum capital growth to the beneficiary on expiry of a target period and thereby serving the specific fund needs of investors, say, future education or marriage of their children, or to provide their children with a lump-sum amount in future so that they can start a business, etc.

To these ends, Child I-Nit '97 scheme is no different from UTI's Children's Gift Growth Fund (CGGF-86) which has recently been closed to investors. The basic difference of the two schemes lies in the fact that while UTI's plan promises an assured lump-sum amount at the end of maturity period, income under IDBIMF's scheme is not assured as the latter has proposed to invest 20 per cent of the proceedings from Child I-Nit '97 scheme in equity shares for the long-term and the remaining 80 per cent in short-medium term debt instruments in the capital market. Thus the future income figures as projected under Child I-Nit '97 scheme are only indicative and are likely to vary with capital market ups and downs.

But, as in the long run, the rate of return on capital investment rules higher than the market rate of interest, the future income from a securities-related fund also becomes higher than that of an assured income fund (in an assured income fund the annual rate of income is generally fixed at par or a little above the market rate of interest). From this judgement, Child I-Nit '97, which offers three different maturity periods, seven years, 10 years and 15 years, promises a good return to the beneficiary.

The IDBIMF scheme offers two investment plans -- recurring investment plan and onetime investment plan-like that of UTI's CGGF-86. But what Child I-Nit '97 scheme offers in excess of CGGF-86 is a life insurance cover to an investor under recurring investment plan. Furthermore, the IDBIMF scheme though christened as Child I-Nit '97, is not meant exclusively for children in the sense that an investor in the scheme can nominate an adult as the beneficiary of his investment.

But in UTI's CGGF-86, the beneficiary must be below 15 years of age and a beneficiary under this scheme gets the maturity amount when he attains his age of 21. But there is no such bindings in Child I-Nit '97 scheme in which a beneficiary will get the maturity amount on the expiry of the target period chosen by the investor. On this account, the IDBIMF scheme is more flexible than the other.

IDBIMF has offered the Child I-Nit '97 scheme for an initial period of 30 days after which the mutual fund will close the scheme to reopen it at a later date depending on the initial response to the issue which aims at mobilising Rs 1 crore.

The scheme projects nearly two-and-a-half time capital appreciation after 7 years, three-and-a-half time increase in 10 years and six times capital growth in 15 years. These projections look good when compared against the current market rate of interest on term deposits. However, the scheme also has a sting in it in the form of a three-year lock-in period as in UTI's CGGF-86 scheme.

With no other options now available in the market for a child growth fund, Child I-Nit '97 is the only alternative to parents who plan to give their children a lump-sum future income to take care of their future fund requirements.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.