The investors can now park their short term surpluses into MMMF while enjoying the same amount of liquidity which they had in a savings bank account. In other words, they do not have to go to MMMF, close the account, wait for the proceeds to get credited into their account before utilising the funds.

According to Vivek Reddy, chief executive officer of Kothari Pioneer AMC Ltd, ``This is a landmark innovation and provides a unique value-added service to investors in line with what investors get internationally.'' The investors can earn much higher interest on their investments compared to 4.5 per cent which they get from savings bank account.Kothari's MMMF has earned a return of 8.04 per cent in 15 days, while the annualised returns since inception of the fund in March 1997 works out to 11.15 per cent.

To avail this facility, an investor has to open a money market account with a minimum initial investment of Rs 10,000 and Rs 1000 thereafter. On the 15th day KPMF will issue a cheque book which can be used from the 16th day onwards. The 15 day period is basically to take care of RBI norms which does not permit payment of interest to any deposit with less than 15 day maturity. Each cheque leaf will have a maximum value limit (to be specified by the investor) starting with Rs 1,000 and in its multiples subject to a maximum limit of Rs 99,999 per cheque.

All investments will be made through the fund and not directly with the bank. Investors will have to maintain a minimum balance of Rs 5,000 in the cheque writing account. If the balance goes below Rs 5,000 at any time during a calendar quarter, the AMC will levy a charge of Rs 100 for thecalendar quarter. A unitholder can make redemptions only by using his cheque and not directly from the fund except for closing the account. A charge of Rs 50 per cheque will be levied by the AMC for dishonoured cheques.

Cheque writing in money market funds caused a major shift of investor funds from bank deposits to mutual funds in countries such as the USA. At present, say KPMF sources, money market funds account for over 25 per cent of the total assets of US $5.64 trillion under management of mutual funds in the US, and even exceed the funds in banks' savings accounts.

Predicting a similar shift in investor preferences in India, Reddy says money market funds which today account for only a fraction of the amount in bank savings accounts will grow steadily as investors realise higher returns than bank deposits, without having to compromise on safety and convenience.