In the case of bank deposits, the minimum period for which an investor can park his funds is 15 days, but the yield is much lower than what an MMMF could offer. With the lock-in period being reduced, MMMFs will be able to attract short-term surplus funds as the yield will be much more in these funds. Moreover, the MMMFs themselves will be able to attract a greater yield on their investments because of a reduction in the lock-in period for certificates of deposit to 15 days.

The mutual fund industry feels that the funds flow into MMMFs could increase by as much as 20-25 per cent following the recent measure. "Withthe reduction of the lock-in period for MMMFs we will be able to directly compete with fixed deposits from banks. Now the mutual funds will be able to design specific products for the short-term surplus money parked with corporates and, thus, more money will flow into mutual funds," said Apple Asset Management chief executive officer Nischal Maheshwari.

Some mutual fund experts however go a step forward and say that the move will provide an all new instrument to the industry. "This will help the mutual funds become more active in debt and short-term investments. This would in effect give a boost to the industry and provide a much-needed impetus with the short-term surplus money flowing into the accounts of money market mutual funds," said Tata Asset Management Company managing director KN Atmaramani. According to JM Mutual Fund's chief executive officer, SV Prasad, the policy will lead to further liberalisation of the markets. The income schemes will directly benefit with the shoring up of their NAVs.

There is, however, a note of caution reining in the euphoria. According to the president of Twentieth Century Mutual Fund, VR Deshpande, banks are not going to stay away from launching their own MMMFs which will include tax benefits and, hence, it will not be a cakewalk for the existing mutual fund players. A start towards this effect has already been made with ABN Amro launching a MMMF. "The banks have a captive corporate clientele which they will cash in on. Thus, MMMFs launched by MFs will lose their edge as the banks come into the segment," says Deshpande.