Inflammable Papers

"The MIP schemes constitute a virtual time-bomb ready to go off," says Dhirendra Kumar, ceo of Value Research, which monitors mutual funds. According to him, these schemes will be a burden on the uti, every time one of them comes up for redemption. For example, as things stand currently, mip 97 (I) has a shortfall of Rs 339.7 crore which it will have to find from somewhere to pay investors, come redemption time in April 2002. Two months later, mip 97 (II) will be due for redemption, and the shortfall here is Rs 380.2 crore. In August, it will have to rustle up Rs 176 crore above and beyond what it has to meet its promises. According to estimates, at their current Net Asset Values, the shortfalls of these 12 schemes add up to a mind-numbing Rs 2,100 crore.

While the losses could be lower if the stockmarkets rise, observers fear that with the uti necessarily focusing all its energies on handling the US-64 mess, the management of the mips could suffer. While debt interest rates have been falling over the past few years, the mips are locked into promises of high-interest dividends. The schemes, therefore, turned aggressively to equities, whose values have, however, eroded sharply, pushing all these schemes into the red. To claw back to profits, the uti will have to generate returns of over 14 per cent, but that seems unlikely in the current depressed equity scenario. No silver lining here.