Can you please tell me whether I'll get my money back," pleads Norma O. Pereira, 60, as she breaks down. Pereira, who worked with ICICI in Mumbai and took premature retirement in 1997, had put a large chunk of her life's savings in monthly income plans (MIPs) of the Unit Trust of India (UTI).

Only when the scheme matures in 2004 will Pereira know if she is going to get her entire money back. If she sells the units right now she gets a pittance because the market value of one unit is less than the Rs 10 she paid for it. If she waits till 2004, she runs the risk of not getting even that.

Like her, V.S. Limaye, 69, who put Rs 1 lakh in two MIPs from UTI, is keeping his fingers crossed. When the first MIP matured in 2001, his principal of Rs 50,000 had shrunk by Rs 8,150. On April 30, he will know how much of his other Rs 50,000 invested in MIP 1997 will come back to him.

Pereira and Limaye are among the lakhs of investors who lapped up UTI's MIPs because they assured attractive returns. In 1997 alone, the UTI launched five MIPs mopping up Rs 5,948 crore. The present value of this investment is only Rs 4,369 crore, a shortfall of Rs 1,579 crore. The five schemes guaranteed returns of between12.4 and 14.93 per cent and return of the principal amount after five years. Unable to service the high rate of dividend, the mutual fund started dipping into the unit capital to pay investors. Now when the time has come to repay the principal, UTI has negative reserves and the net asset values (NAVs) of the MIP units are less than the Rs 10 par value (see chart). For the Government reeling under the middle-class furore over cuts in tax rebates, this is yet another crisis waiting to blow up.

"SEBI should be willing to go to court." G.V. RAMAKRISHNA,former SEBI chairman

Unfortunately, a large chunk of the investors in the MIPs are retired and elderly people who have only hope to fall back on. Even though April 30-when the first MIP 97 matures-is just a few days away, it is still not clear whether these people will get their full principal amount back. In a flashback of what happened in 2001, the UTI, the Securities and Exchange Board of India (SEBI) and the Government are busy passing the buck. After 38 years of the UTI's existence, the Finance Ministry, SEBI and IDBI, are locked in a debate over who owns the mutual fund-and, by implication, who should pay the investors.

"UTI and SEBI have both assured us that investors will get their money back," claims BJP MP Kirit Somaiya, who heads the Mumbai-based Investors' Grievances Forum. Assurances are fine, but where will the money come from? Somaiya has no answers. UTI says it has no money. Add the shortfall for the five MIPs maturing this year to the 11 more MIPs maturing over the next four years, and the total shortfall is Rs 4,500 crore. Besides, there are other assured-returns schemes which will add another Rs 3,500 crore to the deficit. It is a hole as big as it can get. And UTI says it can't sew it up.

"UTI can't refuse to pay, SEBI can't shirk its duty." Kirit somaiya, MP and head of Investors' Grievances Forum

This was bound to happen. The UTI was giving out a dividend of 13 per cent -or even more-but earning much less than that. The problem was aggravated when interest rates in the economy started to fall after 1998 and some of the debt investments by UTI tanked. To be able to give out the promised dividend, UTI increased its exposure in equities in some schemes to the maximum permissible 30 per cent. That was a mistake because the stock markets crashed and the MIPs took a big hit.

UTI has tried to assure investors that it will guarantee capital protection for its MIPs which come up for redemption through its Development Reserve Fund (DRF). The DRF is a corpus to cushion shortfalls. But the assets of the DRF total about Rs 1,500 crore and only about Rs 100 crore of this is in cash. The balance is in real estate and illiquid stocks. It will not be easy for UTI to liquidate the DRF in a hurry. Even if it manages to do so, it would only be enough to meet this year's shortfall. How will the gap in the subsequent MIPs be funded?

An unlikely victim of the controversy is the IDBI. The financial institution owns 50 per cent of UTI's equity stake. It appoints most of the trustees on the UTI board as well as the executive trustee. Even the chairman, who is appointed by the government, is theoretically done in consultation with IDBI, the largest shareholder. Yet, IDBI says it is not a promoter of the UTI and its role is nothing but a historical accident. In any case, IDBI itself is in a financial mess.

UTI has also knocked on the Government's doors. But though the Government agreed in 2001 to assured returns for investors in US-64 (which is not an assured-returns scheme like the MIPs), it has said no to a bail-out package. This has shocked and angered MIP investors who feel that if US-64 and banks could be bailed out, why not the schemes in which they invested.

The Government has asked SEBI to define who is the UTI's sponsor and then direct the sponsor to foot the bill. SEBI guidelines say an entity that sets up a mutual fund is the sponsor. In that sense, it is the Government which is the sponsor, since the UTI Act says that the government would set up the UTI. At the same time, IDBI is the largest shareholder. So is IDBI the sponsor?

SEBI will have to be prepared to take on the Government if its findings show that the Government is the UTI's sponsor. In the past, SEBI has directed banks to cough up money to repay investors in mutual funds of their subsidiaries. It has even filed cases against plantation companies that defaulted on payments. But taking on the Government or an institution which is not under its purview (UTI is not governed by SEBI rules), will be a different ball game altogether. SEBI Chairman G.N. Bajpai is committed to "ensuring that investors get their money". But when, and how, nobody knows.

"The Government has shielded the UTI from SEBI for too long. SEBI should be prepared to go to court to ensure that investors get their money back," says G.V. Ramakrishna, former SEBI chairman. Ramakrishna has repeatedly urged the Government to bring UTI under SEBI jurisdiction.

The UTI is between a rock and a hard place. It cannot settle all the MIPs because it would mean selling a large number of assets which may trigger a stock market crash. Also, unlike in the case of an open-ended scheme like US-64, it cannot take a credit line from banks to tide over the immediate crisis. MIPs have to be liquidated before the expiry date so their units cannot serve as collateral.

UTI has now sought SEBI's approval for a scheme that will give monthly returns but not assure them. The investors of MIP 1997 can shift their investments to this scheme and the more promising investments of MIP 1997 could be transferred to the new scheme. However, SEBI is unlikely to give its nod till the issue of who meets the shortfall is resolved.
Meanwhile, investors like Pereira feel angry, but helpless. "How could they do this to us?" she asks. No one seems to have the answer to this as well.