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UTI MIPs: In DireStraits
UTI’s (Unit Trust of India) woes related to its flagship scheme, US-64,are well-known, but there’s another time-bomb ticking away under the giant’sbelly: its 11 "assured return" monthly income plans (MIPs) that mature over thenext two years, starting April 30. And, as has happened so often in the past, UTIdoesn’t have enough funds to pay unitholders. At current rates, the total shortfallof these schemes is Rs 4,132 crore, of which UTI has the ability to cough up barely Rs1,000 crore. Where will the rest come from?

UTI chairman M. Damodaran has asked IDBI, LIC and SBI to pump in money on the strengthof UTI’s claim that they are its sponsors. He has also approached the government forfinancial assistance. However, neither the government nor the financial institutionsappear keen to bail out UTI. MIP 97 is the first scheme that’ll come up forredemption, on April 30. How UTI meets its commitments on the scheme will provide anindication of what awaits unitholders in other MIPs. Wait and watch.

Changing Face of PPF

Has the Public Provident Fund lost its allure following the fall in interestrates and the Budget 2002 cutbacks on tax rebates? In 1999, it offered 12 per cent,tax-free interest at zero risk. Interest rates are down to 9 per cent, but then rates onall risk-free instruments are down. PPF still carries zero risk, and its returns willalways beat inflation.

Strategy. If your PPF account is close to redemption, invest asbefore, or perhaps even step it up. But if you’re far from maturity, consider otherrisk-free avenues. If you’ve many income-earning years ahead of you, don’t relyentirely on zero-risk investments for your retirement nest-egg. Consider index funds.

Bottomline. The PPF is no longer a matchless wealth creator orretirement planning tool. But it’s still one of the best risk-free investments.

EXPERTADVICE

Stocks

Q. Should I sell Nestle in the light of the risk of its getting delisted?
A. As of now, there’s no proposal by Nestle SA, Switzerland, todelist Nestle India. Still, your fear is not totally unwarranted, given that more and moreMNCs are going down this road. Moreover, Nestle SA, did recently seek government approvalto hike its stake in its Indian subsidiary by 10 percentage points to 64 per cent. Whetherit will eventually delist the Indian company is a matter of conjecture.

Regardless, Nestle is worth holding on to even today. The company is a dominant playerin the processed foods sector and its fundamentals remain strong as ever. At its currentprice of Rs 508, the stock trades at a price-earnings (PE) ratio of 28. The stock islikely to give good, steady returns from current levels, which should somewhat allay fearsof your losing out in the event of a delisting. A review would be called for if and whenthe promoters decide to delist.

Say Hello to Savings

Using Net telephony, permitted from April 1, you can slash your overseas callbills. On four calls a month to the US, of five minutes each, you’ll save Rs 350-620per month.

Talk The Talk

Rs/minute

Total*

Phone to Phone

Peaktime

40.8

816

Off-peaktime

27.2

544

PC to Phone

Net telephony rates

160

ISP charges

0.6

Local call rates

1.2

Total

9.8

196

*For four calls a month, of five minutes’ duration each; Phone-to-phone rates are indicative.

To manage your money better, read Intelligent Investor or log on to www.iinvestor.comand also get personalised information and analysis from our experts who answer queries onsmall savings, insurance, loans, taxation, mutual funds and shares.

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