According to sources at UTI, the response to the issue has been fairly good with collections crossing the Rs 500-crore mark on April 30. "As on May 5, collections in IISFUS '98 have gone above Rs 700 crore and the scheme is expected to rake in another Rs 200-250 crore on the final day of the issue," said an UTI official. The mutual fund behemoth had set an internal target of Rs 1,000 crore for IISFUS '98.

The scheme, with a tenure of five years, offers an assured return of 13.5 per cent for all the five years, payable annually. Sources, however, declined to comment on the impact of ICICI Safety Bonds on collections under IISFUS '98. "It solely depends on investor perception," said an official.

Since the ICICI issue offers a wider choice to investors at almost identical rates, institutional investorsmay have diverted their funds to the safety bonds. The ICICI issue, which opened on April 27, offers three bonds to investors. Amongst the trio, the closest to IISFUS '98 is the regular Income bond, which has also assured a return of 13.5 per cent for five years with quarterly and half-yearly options. The other two bonds -- Money Multiplier and Tax Saver -- offer 13.4 per cent and 12.75 per cent (under section 54EA) & 13 per cent (under section 54EB), respectively.

IISFUS '98 carries a minimum investment of Rs 10 lakh and offers tax benefits under section 54EA. Units under the Institutional Investors' Fund carry a lock-in of three years and will be repurchased at the net asset value (NAV)-based price after three years. The units will be listed within six months on the wholesale debt segment of the National Stock Exchange.

This is the first IISFUS scheme from UTI for calendar 1998. The fund had launched two IISFUS schemes in calendar 1997 which collected a combined initial unit capital of Rs 1,225 crore.While IISFUS (I) had offered 15 per cent per annum, assured returns in IISFUS (II) saw a steep reduction of 225 basis points to 12.75 per cent on account of lower interest rates. The latest NAV of IISFUS (I) is Rs 11.17. "The offering of 13.5 per cent in IISFUS '98 is good, considering that it comes in the backdrop of the slack season credit policy which has signalled a further fall in interest rates," says a debt market analyst. However, LICMF's Dhanvarsha 12 has had no impact on IISFUS despite its assured return of 13.5 per cent per annum. Dhanvarsha 12 closes on May 15. "This may be attributed to the fact that while LICMF has assured returns of 13.5 per cent only for one year, IISFUS has a promise for the entire tenure of the scheme. Besides, LICMF lays greater emphasis on retail investors," said an analyst.

Any shortfall in the assured returns in IISFUS will be met through the Rs 400-crore Development Reserve Fund (DRF) of UTI. However, UTI is likely to see an estimated outflow of Rs 190 crore (based onthe current NAVs) from the DRF when two of its income plans come up for redemption later this year. These are the Deferred Income Plan (DIUP '93) and Monthly Income Scheme with Bonus (MISB '93). If the NAV fails to touch the redemption price, UTI will have to fall back upon DRF to bridge the shortfall.