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UTI MIP (II) mobilises Rs 5 billion

Aabhas Pandya

Unit Trust of India (UTI) has mobilised close to Rs 5 billion in its second Monthly Income Plan for the year 2000. The Trust had assured a monthly coupon of 9.25 per cent for the first year, which translates into an annualised return of 9.65 per cent. The scheme, which opened for subscription on May 19, closed on June 24.

The collections in MIP (II) mark a sharp fall from collections under the first MIP for this year, which was around Rs 10 billion. The last time UTI mobilised only around Rs 4.5 billion was in 1996 when the third monthly income plan for the year garnered only around Rs 4.3 billion. UTI had then assured a coupon of 15 per cent for the first year.

The drop in mobilisation in MIP 2000 (II) is attributed to a lower assured return, coupled with the distinct hardening of interest rates when the scheme was open for subscription. In the first MIP for the current year, UTI had assured a coupon of 10.25 per cent in the first MIP of 2000. Thus, this translates into a cut of 100 basis points under the monthly option for MIP 2000 (II).

Besides, given the volatility in interest rates, UTI has now been assuring returns only for the first year after MIP '99, which had assured a monthly coupon of 10.75 per cent for all the five years. In fact, MIP '99 was the most successful income plan, mobilising over Rs 27 billion. The fact that UTI now assures returns only for the first year has added to the loss of investor penchant for MIPs. Apart from UTI's brand equity, the assurance for the entire tenure had been a major selling point for the monthly income plans.

Apart for the fading charm of UTI's MIPs, investors today have superior open-ended monthly income plans for investments. On the other hand, UTI's MIP carries a lock-in of three years. Add to it, the open-ended MIPs have been delivering superior returns compared to UTI's MIPs. For instance, Alliance MIP has generated a return of 9.55 per cent for the six months ended June 23, 2000.

Apart from Alliance, other asset management companies like Templeton and Sun F&C have also launched their monthly income plans since these funds deliver higher returns than medium-term debt funds with around 15 per cent exposure to equities. Although UTI's MIPs also take around 25 per cent exposure to equities, the equity component has largely failed to give a boost to returns.

The monthly income plans have become the main source of fresh collections by UTI. In 1999, UTI had garnered Rs 40 billion in two MIPs including the record mobilisation of Rs 27 billion in the first MIP for 1999.

Source: Value Research

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