According to sources, UTI is also under pressure from ICICI's forthcoming bond issue. Christened safety bonds, the issue is likely to carry a coupon of 13.5 to 14 per cent although a final decision is awaited. ``We expect ICICI to offer a coupon in the range of 14 to 14.25 per cent,'' said a market source. The Rs 300 crore bonds issue will have a greenshoe option of a similar amount.

The mutual fund behemoth had offered a coupon of 12.5 per cent in MIP-II, which closed for subscription on June 25. The issue mobilised over Rs 850 crore. If UTI hikes the coupon by 25 to 50 basis points, returns under the third monthly income plan would be in therange of 12.75 to 13 per cent for the monthly option. This translates into an annualised return of around 13.84 per cent.

Earlier, UTI had deferred the launch of MIP-III by a week due to interest rate uncertainty. ``If UTI sticks to the previous coupon of 12.5 per cent, ICICI will have a definite edge on account of a variety of instruments including regular income option and a higher coupon,'' said a debt market analyst.

The upward pressure on interest rates is evident after Wednesday's devolvement of government paper on the RBI despite a hike in coupon by 10 basis points on the three-year paper and 65 basis points on the five-year paper. The three year and five year paper devolved to the extent of Rs 812 crore (32 per cent) and Rs 960 crore (48 per cent), respectively. Only the 12-year paper managed to sail through with help from insurance companies.

UTI has set a minimum target of Rs 400 crore to be raised from MIP-III, while the maximum amount is Rs 1200 crore. In the event of undersubscription (lessthan Rs 400 crore) UTI will refund the entire amount. MIP-III is an income oriented plan, which aims at meeting the needs of investors by providing regular income on a monthly/annual basis or cumulation of income over a period of five years.

The plan offers three options: monthly income option, annual income option and cumulative option. The minimum amount of investment will be Rs 10,000 under the monthly and annual income options and Rs 5000 under the cumulative option. The scheme will invest up to 80 per cent of the corpus in debt instruments while the remaining portion can be put in equity instruments.

The assurance of returns is on the basis of the guarantee provided by the development reserve fund (DRF) of the Trust. The size of the DRF as on December 31, 1997 was Rs 574.41 crore.

The units issued under the scheme will be listed on the wholesale debt segment of the National Stock Exchange within six months from the date of closure of subscription.