Of the 12 assured return schemes of UTI under Development Reserve Fund (DRF), seven schemes faced a gap of Rs 111 crore with their net income falling short of the income distribution during 1997-98. These schemes included MIP 97 (I), MIP 97 (II), MIP 97 (III) IISFUS 97 (I), IISFUS 97 (II), IISFUS 98 (I) and MIP 98 (I).

These 12 schemes have a total investible funds of Rs 9,237 crore and are backed by the DRF. The DRF as on June 30, 1998 was Rs 649 crore. As a result of the reserves of the five schemes turning negative the DRF stands eroded to Rs 331.7 crore. Effectively, the 12 schemes with funds worth over Rs 9,237 crore are guaranteed by an eroded DRF whichis a little over three per cent of the total funds under these schemes.

Some of the schemes, especially MIP '97 series had seen a shortfall in the previous year too. With UTI unable to bridge the gap in 1997-98, these schemes had to eat into the reserves.

The fate of the DRF itself depends on the performance of the stock markets. This is because about 64 per cent of the DRF porfolio is invested in equities, nine per cent in money markets and the balance in debt instruments.For instance, in the case of MIP '97 (I), the scheme had a net income of Rs 124 crore for 1997-98 against an outflow of Rs 153 crore on account of income payout, a gap of Rs 28 crore. With an assured return of 14 per cent for five years, MIP '97 had collected more than Rs 1100 crore just before the credit policy signalled a fall of interest rates.

With a shortfall of Rs 6 crore in the first year (1996-97), the scheme probably could not corner debt instruments that gave returns in excess of 14 per cent. Since then, interest rates havefailed to rise back to the pre-1997 levels with the coupons on the following MIPs reduced to 12.5 per cent. Further, the 20 per cent equity exposure under the income plan has failed to generate adequate returns to bridge the shortfall since equity markets have been in doldrums. Even in the case of MIP 98 (II), the shortfall was Rs 5.6 crore in a matter of few months. The scheme had offered a coupon of 12.5 per cent per annum. Thus, it seems that the fund failed to invest in debt instruments that gave returns of 13 per cent or more than 13 per cent. In fact, the trust saw a decent inflow in reserves for MIP '97 (V) where it earned Rs 33.33 crore while income distribution was Rs 20.53 crore.

It must be noted that this was the only scheme where UTI had offered less than 12 per cent - 11.75 per cent per annum. Again, the invested amount here was only Rs 500 crore. Thus, both the factors came as comfort levels for UTI.

One more assured scheme from UTI

Despite the shortfall in five of its assuredreturn schemes and their potential to wipe out the DRF, the mutual fund behemoth has nowhere to go but assured return schemes to attract investors. UTI has currently two assured return schemes in the market - IISFUS '98 (II) with an assured return of 14 per cent and MIP (IV) with an assured return of 12.5 per cent per annum. IISFUS '98, which offered an assured return of 13.5 per cent per annum, saw a shortfall of Rs 17 crore for the year ended June 30, 1998. Interest rates have not seen any major appreciation for the trust to assure 14 per cent against 13.5 per cent in IISFUS '98.

The trust has seen investments dry over the years in its non-assured schemes - especially equity schemes and has banked on assured return schemes and US '64 to attract moolah. Now with US '64 scare among investors, the dependence on assured return income schemes is all the more unless equity markets take a major upswing.