"We are in the process of launching a gilt fund and a money market mutual fund shortly and have prepared for launching the prospectus with Sebi. The market looks good for these kinds of schemes," said Canbank Mutual Fund managing director KV Hegde.

The move by the Reserve Bank of India (RBI) allowing MMMFs to have a cheque- writing facility has prompted a large number of mutual funds to launch money market mutual funds. "Cheque-writing facility gives a direct competition to the savings accounts of banks as money market mutual funds give superior returns and with the possibility of depositing or withdrawal of money through cheques imparts equal amount of liquidity and safety of investment", said Hegde.

The move to launch a giltfund comes in the wake of allowing provident or gratuity or superannuation funds to invest in 100 per cent gilt funds. The move by the government will benefit the provident funds not covered under the regional provident fund guidelines.

For example, if corporates manage a small provident fund or gratuity fund, then they find a problem in parking these funds and additionally, it is difficult to find the right price for the same when buying or selling a security. Therefore, it makes sense for these provident funds or gratuity funds to put money into the RBI. "On the other hand, it is the second section of large corporates which form their own trusts and manage money to generate a better income than RBI these could invest in gilt funds", said Hegde.

"Provident funds investing in the RBI get a guaranteed return of 12 per cent and any shortfall in returns are made good or borne by the RBI. And competing with these returns would be difficult for fund managers", said a fund manager.

"Gilt funds will providesafety of returns with sovereign guarantee and good returns for idle money. With the government allowing provident or gratuity or superannuation funds to invest in the 100 per cent gilt funds, the market for gilt funds will expand", said Hegde.