In its credit policy unveiled on October 29, the Reserve Bank of India has permitted gilt funds and cash funds with more than 80 per cent investments in short-term instruments to offer cheque-writing facility to unitholders.``Introduction of cheque-writing facility has been a long-standing demand of the fund industry. However, there is this basic requirement of tying up with a scheduled commercial bank which will take some time to fructify,'' says the head of a Mumbai-based mutual fund.

Industry sources point out that to start with, a number of banks are hesitant to tie up with mutual funds for cheque-writing facility for fear of loss of business. ``While banks which are into fee-based activity are forthcoming, the problem lies with public sector banks who feel that this facility will lead to a shrinkage of their deposit base,'' says the head of a Delhi-based mutual fund. ``Ironically, public sector banks, with their massive branch-network are ideal for launching this kind of a facility but they lack the infrastructure,'' he adds.

Fund officials add that flow of information has to be virtually on-line in cheque-writing facility. ``The mutual fund should come to know instantly that an investor has paid an X, Y, Z amount to a person by issuing a cheque on his account with the gilt fund. Funds and banks need to invest in establishing this on-line setup. This involves a lot of cost, especially if it is across-the-country,'' says an analyst. The issue of sharing signature is another problem bothering AMCs. ``An investor will have his signature with the registrar but how will the bank verify his signatures. Thus, either he opens an account with the bank with which the AMC has a tieup or else, cheque-writing facility will be available only to a few investors,'' says a mutual fund head. ``Clearly, it is not as convenient as a bank account but investors will earn much higher than their bank savings account,'' he states.

Since it will be a tripartite agreement, there is a cost involved in offering this service to the investor. ``It remains to be seen whether banks will provide this service for free or whether there will be a per cheque cost. We are debating on introducing a load or charging a nominal charge per cheque to recover that cost,'' says a AMC official. ``There is a definite cost but in a highly competitive environment, some funds may not charge it to investors,'' adds an analyst.

Funds like Prudential-ICICI, which was the first to offer cheque wiring facility in its liquid plan, may not offer this service in its gilt fund. ``The fund has a load structure in its gilt plans and hence, an investor will lose out if he issues a cheque before the stipulated period,'' says an industry observer.