When Indian Bank Mutual Fund launched the scheme in 1992, it had promised a return of Rs 30 per unit on redemption after seven years. ``Now the time has come for redemption (due on November 30, 1999), but the parent bank and Indian Bank Mutual Fund are refusing to honour their commitments as the net asset value of the scheme is around Rs 17. They want the investors to accept the redemption at Rs 17 per unit,'' said an investor.

If the investors accept the contention of the mutual fund and redeem the unit at Rs 17 at a loss of Rs 13 they stand to lose around Rs 70 crore in the process. ``Why should we suffer for the follies of the mutual fund. Indian Bankhad earlier shelled out funds to pay the shortfall in the promised returns under another scheme Ind Jyothi,'' investors said.Continuing its stand in favour of investors, the SEBI had already asked Indian Bank MF and its parent to chip in with the shortfall and fulfil the commitment. It is understood that the RBI also supported the SEBI stand and asked Indian Bank to fulfil the commitment made to the investors.

The crisis has deepened with the government refusing loss-making Indian Bank to bail out its mutual subsidiary. On the other hand, Indian Bank Mutual Fund is strapped for cash and is not in a position to shell out Rs 70 crore to pay up investors. SEBI is believed to have rejected the argument of Indian Bank and is still insisting that investors of Ind Prakash should be made full promised return of Rs 30 per unit. However, Indian Bank MF has sent out letters to investors saying that it would redeem the units at a lower NAV. What angered investors was the fact that Indian Bank MF had earlier agreed tomake the payment but retracted later.

The mutual fund made a commitment on June 15, 1999 that ``in the interest of investors, Indian Bank, the sponsor bank of the mutual fund, has proposed to meet the unpaid dividend liability even though the scheme has given only indicated returns.'' The mutual fund earlier which agreed to pay up the shortfall earlier has now gone back on its word. The huge losses made by its parent Indian Bank which is now waiting for a bailout later changed the situation. ``Such a somersault is unheard of in the financial world and is making a mockery of themselves and fooling investors,'' said Kirit Somaiya, president of Investors Grievances Forum. The scheme has a corpus of Rs 102 crore under Plan A and Rs 100 crore under Plan B. While Plan A has a NAV of Rs 10, investors have not been paid dividend from 1996-97 which works out to Rs 6.59 per unit. The NAV of Plan B is Rs around Rs 18.50 while the minimum promised return is Rs 30.32. Now with Verma Committee proposing drasticrestructuring for the bank, it's unlikely that Indian Bank would be able to bail out its mutual fund.

This is not the first time a mutual fund is finding it difficult to pay up the shortfall in promised returns. SBI Mutual Fund, LIC MF, GIC MF, Canbank Mutual Fund and BoI Mutual Fund have paid up nearly Rs 1,000 crore as some of their schemes failed to meet the promised returns. While most of these mutual funds were reluctant to meet the shortfall initially, the SEBI put its foot down and prevailed upon them to pay up the investors. In some cases, their parent banks/institutions came to the rescue of the subsidiaries.

However, here the situation is different. Indian Bank itself is waiting for a government bail-out. The Chennai-based public sector bank announced a net loss of Rs 788.50 crore for fiscal 1999. The massive net loss, its fourth in a row, pushed its accumulated losses as on March 31, 1999, to 3,181.88 crore, wiping out its net worth of Rs 2,898.63 crore. In effect, Indian Bank's negative networth now stands at Rs 283 crore.