| UTI defaults on Rajlakshmi |
UTI
has pulled the rug from under the investor's feet. It has no idea how many dreams it has
crashed, how it has upset the financial plans of many investors and all because it
had not leveled with the investors.
The Rajlakshmi Unit Scheme launched in 1992-93 was a great plan for the under 5 girl
child, which assured a maturity sum on attainment of maturity of the investee. By
assuring the maturity amount, UTI had in a way assured the return which was based on
calculations of 16% p.a. But today UTI has prematurely encashed this scheme. "In
periods of such low interest rates it was not possible for us to continue to give this
high a return and so we have withdrawn the scheme" says Ms Indrasarthy of
AGM-Marketing,UTI, Hyderabad.
But surprisingly it turns out that there was no mention of the Unit Trust of India's (UTI)
ability to redeem the units prematurely in the application forms for the scheme. That such
a premature termination clause was a part of the offer document. "Actually it was
mentioned in the application form that the scheme would function as per the provisions
mentioned in the offer document. And one of the provisions was of this premature
redemption" adds Ms Indra Sarthy. UTI has said that the application forms needed to
be read together with the offer document. However it had clearly stated in the application
form that the maturity value would not be touched till it is handed over to the
beneficiary and that it was an 'irrevocable gift'. Also no where was the investor advised
that he should read the form in conjunction with the offer document. The Securities and
Exchange Board
of India (SEBI) is currently examining the legal implications of whether the scheme falls
within the purview of assured returns schemes.
Of course the present interest rate scenario does not permit UTI to continue with offering
those high rates of interest as originally promised. From the point of view of investors,
the UTI assured a return, and it can't back out now from its commitment. Whether interest
rates have gone down or not is no concern of these investors. All the lower interest rates
show
is that the UTI had made a miscalculation and now it should pay the financial consequences
of that miscalculation.
Also the clause of premature redemption should have been clearly stated in the application
form and not hidden away in the offer document. Even if UTI is able to legally get through
the loophole provided by the exit clause in the offer document, the question remains
whether the UTI was transparent enough in not prominently displaying the clause in the
application form.
After all, the scheme sold on the basis of ensuring a high return to the investor, and it
is only fair on the part of the country's biggest mutual fund to ensure that there is not
even the faintest suggestion that investors were being taken for a ride.
"We are giving the investors the option of converting their investment to another
scheme which is almost identical" says Ms Indra Sarthy. The Children Career Plan is
the scheme which is being offered as an alternative, but of course the return in this much
lower at around 13% p.a. "But this scheme has the additional advantage of offering
scholarship at the time of redemption as well as giving the child tax free income"
she adds. The investors also have the option of redeeming their investment at the buyback
price offered by UTI, in which case their return from 92-93 would work out to 16% p.a.
"People who had invested Rs 10,000 in 92-93 will receive Rs 34000" says UTI
What the poor unsuspecting public does not know is the fate of the other two Rajlaxmi
schemes which were launched in 1994-promising a 14% p.a. return by way of assuring the
maturity amount and the Rajlaxmi 1997 issue where there was no guarantee of the maturity
amount but the indicative returns are in the range of 13% p.a. What UTI will decide on
these two
schemes is not known! By a guess is that the 1994 issue will also meet a similar fate, so
the investors should beware. Also in the case of the Children Growth Gift Fund and the
Children Career plan, where the returns are in the 13% range-one cannot say what this
juggernaut-UTI will do considering that it seems to be making its own rules and seems to
be outside the purview of any regulatory controls
Sometime ago a survey done had revealed that investors equated the security and safety of UTI investments with those of Banks-so definitely a move like this has shaken the investor confidence. "We are a mutual fund and not a bank, and we want people to know this" reply UTI officials callously to this. Perhaps what UTI needs along with a dose in public relations is some more sophisticated in puts for designing the instruments they offer to investors.
Aru Srivastava