What to do with the maturing UTI 2004 bonds

The tax-free bonds issued in 2004 against seven assured returns schemes (ARS) of the erstwhile Unit Trust of India (UTI) are set to mature on March 31.

If you are among the investors who did not exit any of these schemes at that time by taking cash and have stayed invested, the maturity amount of these bonds would come into your hands just 40 days hence.

The seven assured returns schemes, which were converted into bonds are the Children’s Gift and Growth Fund - 1986 and 1999 (CGGF-86, CGGF-99), Rajlakshmi Unit Plan - 1994 and 1999 (RUP-94 and RUP-99), Monthly Income Plan -98 (V) and 99 and the Bhopal Gas Victims Monthly Income Plan - 1992 (BGVMIIP-92).

Why the bonds?
All these were guaranteed-return schemes that ran into trouble when UTI collapsed. In March 2004, investors in these schemes were given an option to either convert to 6.60% tax-free bonds or to exit by accepting cash. Further, UTI was split into two entities - UTI-I or the Special Undertaking of the Unit Trust of India (SUUTI) and UTI-II (later renamed as UTI Mutual Fund).

All the non-performing schemes, including the infamous US-64 and the seven assured return schemes against which bonds were issued, were transferred to SUUTI.

The ARS bonds, whose principal and interest is guaranteed by the Government of India, can currently be traded on the National Stock Exchange, but would not be available for trading post March 1, 2009.

How much will one get?
As per the ARS Bonds, an investor would get an interest of 6.60% per annum on the bonds purchased at a face value of Rs 100. However, the interest for the same is paid half-yearly, which means all investors have received the interest twice a year for five years since March 2004. This interest is tax-free in the hands of investors.

What falls due after March 31, 2009 is the remaining interest for the past six months and the principal amount invested in the bonds.

It is estimated that around Rs 6,000 crore would be disbursed to investors after maturity.

What if you haven’t received interest?
As per the ARS bonds offer, investors were to be paid interest half-yearly. However, there have been several complaints about interest payments not being received. If you are among those who haven’t got the interest yet, you can contact the UTI TSL head office in Navi Mumbai or any of the service centres or email to mumbai@utitsl.co.in quoting your certificate number.

How to claim the amount?
The UTI Financial Centres (branches of UTI Mutual Fund) and the offices of UTI Technology Services would help investors claim the maturity amount under the ARS bonds. The bonds were issued five years ago and in case you have not submitted your bank particulars or have changed your bank account since then, you would need to update the same by February 28, 2009.

The forms to update bank account details can be obtained on the websites www.utimf.com and www.utitsl.co.in or from the offices of UTI TSL and UTI Mutual Fund. The branch addresses of these offices can be found on the two websites.

What do you need to submit?
If you hold more than 400 ARS bonds, you will have to surrender the certificates at the UTI Financial Centres or UTI TSL offices before February 28, 2009. Those holding less than 400 ARS bonds need not surrender their certificates. They will get direct credit of the maturity proceeds, provided the bank account details are furnished accurately. So, it is essential to verify whether the bank particulars held by SUUTI are accurate.

What to do with the amount?
Investors visiting UTI Mutual Fund branches to get maturity proceeds are being offered an option to invest in UTI Mutual Fund schemes. However, investors should look at specifics of the scheme performance and viability in the current phase before investing maturity proceeds from the ARS bonds.

Sandeep Shanbhag, director of tax and financial planning firm Wonderland Consultants, suggests, “Depending on the risk appetite, a small part should go to equity. How small depends on the age of the person. The rest should be invested in fixed deposits, about 10-15% in gold and in short-term mutual funds.

Shanbhag suggests short-term funds since the interest downturn theory has been halted by the interim budget.

“Long-term interest rates will rise in spite of RBI cutting rates because of the fiscal deficit of the country. Long-term bond funds have started negative returns. So people should invest about 40% in low-duration income funds, whose maturity is not more than 2-3 years,” he says.