CAG criticises Bihar govt for keeping funds open to market risks

The Comptroller and Auditor General (CAG) has criticised the Bihar government for its "imprudent" decision to invest Rs 268.71 crore of a scheme in a mutual fund without setting up any monitoring mechanism thus exposing the scheme to market risks.

The CAG report on PSUs for the year ended March 31, 2012 tabled in the Assembly on Thursday was critical of the state government's decision to invest the fund of the Mukhya Mantri Kanya Suraksha Yojna in Unit Trust of India-Children care plan (UTI-CCP) mutual fund.

The scheme has been launched in July 2008 for welfare of minor girl children from BPL families.

Under the programme, Rs 2000 is invested in UTI-CCP in the name of a newly born girl child and the maturity proceeds of which will be paid to her on attaining 18 years of age. The CAG report said the net value of Rs 268.71 crore invested in UTI-CCP was Rs 292.41 crore in May 2012.

"Had these amount been invested in any other long term schemes like post office fixed deposit etc. having guaranteed/ assured returns, the maturity amount... would have been at least Rs 299.09 crore (in May 2012)," the CAG report said.

It also observed that the government did not invite any bid from the public and private sectors for selection of the mutual fund manager.

An MoU was signed in June 2008 among Social Welfare Department, Women Development Corporation and UTI with the consent of the then state finance minister Sushil Kumar Modi.

"The MOU did not guarantee any minimum assured amount payable to the beneficiary at the time of maturity nor there any clause inserted in MoU to safeguard the interest of the government or the beneficiary," the CAG report said.

The return was based on market speculation though the investment was made for a period ranging between 15 to 18 years since the inception of the scheme.

In case the fund depreciates there is no provision of compensation to the beneficiaries of the scheme.

"Hence the beneficiaries are open to the perils of market risk as there is no assurance/guarantee of minimum assured return," the report said adding "it may be more judicious to put such funds in long term scheme which would guarantee assured return."