| . | The behaviour of the stock markets during the last week has been a little puzzling. Even as guns boom in Kargil and more peaks are recaptured, the stock market crossed the 4200 mark and appeared set for further heights. The last word has not however been said on the possibility of the Kargil battle extending to a war on a wider front. Since the Pakistani army may have its own agenda in the battle including perhaps the bringing down of the Nawaz Sharif government, a deliberate extension of war by the Pakistan army cannot be ruled out. Under the circumstances, the cost of the conflict and the forthcoming elections will definitely leave their impact on the next budget and cause a reversal to the current low rates of inflation. In spite of this hovering threat, the interest rates in the market are likely to ride on the temporary fall in the inflation rate and continue to decline for some more time. The slashing of dividends by UTI to a mere 13.5 % dividend on its UTI 64 scheme has lowered the benchmark yields for fixed interest instruments in the market. It would not be surprising if the interest rates in the Banking sector also come down further. Investors have to therefore look for "Financial Engineering" to improve their portfolio yields to be able to keep their life styles intact. In such a generally depressing scenario for the investors, it is heartening to note that the Chennai based Kothari Pioneer mutual Fund (KPMF) has come up with a value-added offer of a Chequebook facility on its money market mutual fund. This can have a far-reaching impact on the investing habits of an average Indian investor. KPMF has an open ended money Market mutual Fund, which was started, in March 1997. The fund invests in Money Market instruments such as Call Money and Certificate of Deposits, which are highly liquid. Since the risk exposures are on other participants of the Money markets consisting of Banks and Financial institutions, the safety factor is also very high. The past performance of the fund has been extremely good. It has recorded an annualised return of 11.26 % since inception, which is perhaps the highest among money market funds. Even during the last one year when the market interest rates were low, the fund has appreciated at 9.23 %. Since this is a no load fund, the entire earnings are available to the investors. After an initial lock in period of 15 days, investors can enter and exit any time at the NAV (Net Asset Value). Since the NAV s are arrived at on a daily basis, the investments will earn on a daily balance basis. Compare this with the bank savings bank where you earn 4.5 % per annum on the minimum balance between the 10 th and the last day of the month. The returns that can be earned in the Money Market Mutual Fund will therefore be more than double the corresponding returns in ordinary Bank Savings Bank accounts. We have on other occasions discussed maximisation of Savings bank yields through "Auto Sweep" accounts or "Unfixed Fixed Deposit" accounts. The KPMF scheme may give better returns than even these accounts in the long run. Until now, Bank Deposits had one special advantage that made them superior to the fully liquid mutual funds like the money market Funds. That was the Chequebook facility that made it easy to withdraw funds. This last unique benefit has also been usurped now by the mutual funds. KPMF has in an arrangement with ABN-AMRO bank, which will be issuing chequebooks to the holders of KPMF Money market mutual funds so that the withdrawals are as easy as issuing a cheque. The limitations are that the facility would be available only if the initial investment is Rs 25000 and above. A minimum balance of Rs 5000 is required to be maintained and withdrawals should be in multiples of Rs 1000. Presently the withdrawal cheque has to be credited to the Bank account and cash withdrawn from there. Don’t be surprised if even this dependence on the Bank account is removed in future making Bank only an intermediary in the personal money management scheme. This development is not a welcome development for Banks since it could erode the low cost Savings Bank base of the Banks. However Investors should consider it a great opportunity to increase yields on their liquid resources lying in various SB accounts and make maximum use of the scheme. Na.Vijayashankar 3rd July 1999 | . |