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Aabhas Pandya
NEW DELHI, NOV 13: After mobilising Rs 30 crore in its open-end fund, Magnum Liquibond, SBI Mutual Fund has lined up two Magnum Monthly Income Schemes, christened MMIS '98 (II) and MMIS '99 for launch in January this year.
In a significant departure from the past trend, the five-year schemes will assure returns only for the first year. The returns for subsequent years will be paid through post-dated cheques at the beginning of every year, depending on the interest rate scenario. This effectively means that the schemes will assure returns only for the first year, unlike the earlier ones which carry assured returns for five years.
The view that mutual fund schemes should not assure returns has been gaining ground at SBI Mutual Fund's sponsor, State Bank of India (SBI). SBI will have to fork out an estimated Rs 410 crore at current NAV of Rs 185 in Magnum Triple Plus when it comes up for redemption early next year.
As on June 30, 1998, the AMC faces a shortfall in two of its MMIS schemes - Rs 7.93 crore inMMIS '91 and Rs 4.55 crore in MMIS '97. SBIMF had faced a shortfall of Rs 34.25 crore in MMIS '91 in 1997-98 where it has assured a coupon of 14 per cent. The AMC has a networth of Rs 38 crore.
``In the current scenario, it is risky to take a five-year view on your investments and thus, assure returns for such a long tenure. The fortunes of corporates are changing so fast that we do not know how corporates and their instruments will behave in the next five years,'' says Niamatullah, managing director, SBI Asset Management Company.
``This definitely signals that asset management companies are moving away from assured returns and is a positive development for the fund industry,'' says an analyst.
While MMIS '98 (II) is slated to hit the market shortly, the tentative date for the launch of MMIS '99 is January 25. MMIS '98 (II) is likely to pay a coupon of 12.5 per cent on a monthly basis which will translate into an annualised rate of 13.25 per cent. In the case of MMIS '99, assured returns for the firstyear will be in the range of 11 to 15 per cent, depending on the interest rate scenario and will be decided at the time of launch.
For instance, returns for the monthly option are likely to be in the band of 11 and 14.6 per cent and between 11.57 and 15 per cent for the annual option. For the quarterly option, an investor can expect returns between 11.1 and 14.22 per cent. Returns are not assured in the cumulative option, where a lumpsum will be paid upon redemption of the scheme after five years. The minimum investment is Rs 5000 in the three assured options while it is Rs 2000 in the cumulative scheme.
The AMC has set an internal target of mobilising Rs 100 crore each in both the funds. The schemes have a minimum target of Rs 30 crore each. Under the schemes, the AMC has to invest a minimum of 85 per cent in debt instruments and can invest a maximum of 15 per cent in equities. Repurchase of units is available at net asset value after one year in monthly, quarterly and annual options and after 3 yearsin the cumulative option. The two schemes offer tax benefits under section 54EA.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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