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B. Venkatesh

TEMPLETON India Money Market Account (TIMMA) is a short-term fund that invests in money market instruments.

Those looking to increase their returns on the moneys in their savings bank account can invest in this fund.

Investors should consider the following factors before buying units in the fund: The fund is suitable for investors with a diversified portfolio of fixed-income investments.

Such investments include long-term government bonds, medium-term corporate bonds and fixed-deposits. Investing in TIMMA enhances diversification because the fund takes exposures in money market instruments. The NAV for a fund having exposure to such instruments is not based on the market price; the NAV is simply the interest accrued on these instruments on a daily basis. This means that the NAV will not fall below the initial investment value, unlike in the case of bond funds that are marked-to-market.

Now, the call money market is about 4.75 per cent, and other money market instruments such as commercial papers and T-bills are marginally higher. This means that retail investors can earn at least 3 percentage points more than the interest on the savings bank account. Besides, the risk is not significantly different from the savings account. TIMMA and the savings bank account are exposed to reinvestment risk. If interest rates were to decline further, TIMMA's portfolio manager will have to reinvest the money at lower rates. Similarly, monies in the savings bank account will earn lower interest rate when rates decline.

Investors need to be, however, wary of the expense ratio. The fund's expense ratio of one per cent is somewhat high. This essentially means that if the fund earns 5 per cent on its portfolio, the unit-holders will receive only 4 per cent, because the fund will deduct one per cent for managing the portfolio. Of course, given that the interest rate on savings bank account is very low, the fund provides good returns even after adjusting for the expense ratio.

The return differential will narrow only if the RBI cuts the repo rate and continues to administer the savings bank rate at the current level; a cut in repo rate will lead to lower rates on call money and other money market instruments. On balance, retail investors who want to enhance returns on their savings bank account can buy units in this fund.

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