Final cash support for UTI in Budget ’03-04

He added that with finance minister Jaswant Singh’s assurance of full government support to the Trust, the NAV of US-64 is likely to improve in coming months. ‘‘The government will firm up the final component of cash support to US-64 only on the basis of the prevailing situation,’’ he said. The Trust has asked for a Rs 5,000 crore support to meet redemption pressure. The government has already provided Rs 300 crore cash support to US-64 in 2001-02 and Rs 500 crore in the current financial year through first supplementary grants. Another tranche of Rs 500 crore is expected to be provided by the government in the winter session of Parliament. The government is providing the cash support to UTI to meet the gap between guaranteed price and NAV.

The finance ministry official said the government is also likely to provide third tranche of cash support to UTI in the current fiscal to handle redemption of US-64 units. The amount would be finalised taking into account the US-64 NAV at the time of providing the cash support. As a result, the cash support to UTI in the current fiscal to meet the gap between NAV and guaranteed price of the redeemed US-64 units is set to cross Rs 1,000 crore. However, the real requirement will emerge in May 2003 when there will be a huge redemption pressure on account of US-64 at a guaranteed price of Rs 12 per unit.

While the government has committed itself to provide cash support to US-64, finance ministry sources said that it is unlikely to provide such support to the Trust for meeting redemption pressure on account of its assured return MIPs at this juncture.

They added the current method of providing guarantee for handling the redemption pressure on these schemes will continue till the new sponsors join UTI. The mode of government support to these schemes in the proposed new set up is expected to be part of the restructuring plan to be approved by the Cabinet Committee on Economic Reforms.