• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

B. Venkatesh

TEMPLETON India Money Market Account offers good returns for those with short-term investment horizon. As of November 30, the fund had 91 per cent of its assets in short-term corporate instruments, and 9 per cent in call money. Investors can consider the following factors before buying units in the fund:

First, the fund offers better returns than bank fixed-deposits. This is because the fund invests in short-term corporate instruments such as commercial papers, government Treasury Bills, and call money.

The average interest rate on a three-month bank deposit is 5.5 per cent per annum, which is also the rate at which call money trades at present (call money is a rate at which banks and primary dealers borrow money from other institutions for one to, typically, 14 days). The interest rates on short corporate instruments are higher than call rates. Hence, scope for higher returns exist.

Second, the potential for higher returns comes at low risk. The typical risk in mutual funds is the fluctuation in net asset value (NAV), as the portfolio has to be marked-to-market. But that is not the case with the Money Market Account.

Since the fund primarily invests in instruments with maturity of less than 181 days, NAV is calculated on an accrual basis. That is, interest earned on the instrument is added to the NAV every day. The risk, then, comes from the likelihood of the companies issuing the instruments defaulting in the payment of interests and repayment of principal. Such default risk is low, because the instruments are of a short-term nature.

Third, the fund's short-term investment horizon results in frequent changes in portfolio, even if the instruments are held till maturity. Even adjusting for this, a comparison of the month-end portfolios suggests that the fund is actively managed. For instance, the fund was overweight on calls in September, but cut its exposure in October. Such active portfolio management suggests that the fund can improve investors' short-term returns benchmarked to the bank deposit. One factor that is a cause for concern is the low asset base; assets totalled Rs7.35 crore as on November 30.

Such low asset base means that the fund cannot invest in more than three instruments. This reduces the benefits of diversification but that is not a major problem, as the default risk on short-term AAA-rated instruments is low.

Background: The minimum purchase of units in the Money Market Account is for Rs 5,000, and is Rs 10,000 with cheque-writing facility. There is no entry and exit load, but the units are locked in for 15 days from investment.

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
Telecom cables: The optical illusion

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line