The Hindu Business Line : UTI Money Market Fund: Invest

REDEMPTIONS of India Millennium Deposits have taken out close to Rs 32,000 crore from the financial system. Supply and demand for money is finely balanced. Interest rates could go up sharply from present levels or stay stable; it is difficult to take a call. The value of both debt and equity portfolios will come under pressure if interest rates were to rise sharply.

A money market fund is a perfect recipe for such times. Rise in rates in the short-term money market would even lead to an increase in returns to investor. One of the better products available in the market to play that strategy is UTI Money Market Fund. Investors can park their surplus funds in this vehicle while taking time off to decide if the time is ripe for a re-entry into equity or debt.

For retail investors, there are a few competitors to UTI Money Market Fund available in the market; one notable fund is Templeton India Money Market Fund. Both were launched at about the same time, in 1997.

Since launch, UTI Money Market Fund has delivered returns of about 7.9 per cent per annum while Templeton has delivered returns of 6.04 per cent per annum. Over the past year, the UTI has delivered returns of 5.4 per cent — higher than Templeton's returns of 4.7 per cent.

The difference in returns appears to be mainly due to the expense ratios. Templeton charges 1 per cent of net assets as expenses for managing the fund while UTI charges exactly half that. In debt and liquid funds, lower expense ratios usually translate to higher returns. Templeton charges more because its product offers the facility of writing cheques. Investors in Templeton's product can write cheques to their bank accounts. There is, however, a lock-in-period of 15 days.

In terms of competitiveness, UTI Money Market has consistently delivered returns that would rank on a par with that of competition. Returns from this set of products have also been better than that of short-term bank term deposits. And, since indexation facility is available, after-tax returns would be superior to those from bank term deposits, if investors hold the units for more than a year.

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