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Monthly Income Plan 1999

The closed-end guaranteed return fund is due for redemption in May 2004. Investors have two choices - stay put or cash out. Investors wanting to cash out will be at a disadvantage, whereas, investors who wait till redemption will get higher of the assured price or NAV.

Monthly Income Plan '99 (MIP '99), a closed-end guaranteed return income fund was launched in June 1999 in three flavours – Cumulative, Monthly and Annual dividend options. The cumulative option assures investors a return of 11.3 per cent per annum over its entire tenure of five years. The fund is due for redemption in May 2004. Being the last of the MIP series which assured return for the full tenure, the fund was able to raise Rs. 3065.83 crore.

By its mandate, the fund can invest upto 30 per cent in equities, and the fund was close to its ceiling for equities -- 28.4 per cent as on June 30, 2000. Perhaps launched just before the technology led equity boom tempted the fund to a high equity allocation with Infosys being the top holding accounting for as high as 14 per cent in March 2000. The funds NAV touched a high of Rs 12.47, within 8 months of its launch.

Subsequently, with sustained fall in equities its equity allocation has fallen to 19.46 per cent as on October 31, 2001. The fund has consistently maintained a diversified portfolio, still could not escape the sharp fall in equities. The fund is in a tight spot with its NAV at Rs. 9.56 as on December 31, 2001. But the fund still has 2 years and five months for its redemption. A market rally can still come to its rescue. Else, the gap could mean sizable filling liability for UTI again given its mammoth size.

MIP '99 investors have two choices – stay put or cash out. Investors wanting to cash out will be at a disadvantage, as they will get NAV based repurchase price. For investors who wait till redemption will get higher of the minimum assured price or NAV. Bad health is of little concern for investors willing to wait till its redemption.