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Financial System 261
enable high-level corporate borrowers to diversify their sources of short-term borrowings
on the one hand, and provide an additional instrument to the banks and financial institutions
in the money market, on the other.
4. Certificate of deposits(CDs): The CDs are another important instrument of
money market. They are issued by banks in multiples of Rs. 25 lakhs subject to
a minimum amount of Rs. 1 crore. The maturity is between 3 months and one
year. They are issued at a discount to the face value and the discount rate is freely
determined according to market conditions. CDs are freely transferable after 45
days from the date of issue.
Money Market Mutual Funds(MMMFs)
In April 1992 the Government announced the setting up of Money Market Mutual Funds
(MMMFs) with the purpose of bringing Money Market instruments within the reach of
individuals. Scheduled commercial banks and public financial institutions would set up the
MMMFs. The shares/units of MMMFs would be issued only to individuals. In this respect,
they will differ from UTI and other mutual funds which have been mobilizing the savings of
the middle classes (and also of others including companies) for investment in equities in
the capital market.
Mutual funds have emerged as an important segment of financial markets in India,
especially following the initiatives taken by Government in the 1999–2000. Budget to resolve
problems associated with UTIs US 64 scheme and to liberalise tax treatment of incomes
earned through mutual funds. The now plays a crucial role in channeling savings of millions
of individuals/households form different parts of the country into investment in both equity
and debt instruments.
The mutual fund industry has witnessed several innovations in the current financial
year. The monetary and credit policy for 1999–2000 has permitted money market mutual
funds to offer cheque writing facility to unit holders. Some of the Mutual Funds have
introduced limited cheque writing facility by allowing its unit holders to issue cheques against
a savings account with a designated bank.
The Mid-term Review of Monetary and Credit Policy announced the decision to permit
scheduled commercial banks to offer “cheque writing” facility to Gilt Funds and those Liquid
income Schemes of Mutual Funds which predominantly (not less than 80 percent of the
corpus) invest in money market instruments. Another significant development related to
the emergence of sector funds targeting sectors such as information technology,
pharmaceuticals, fast moving consumer goods, etc. Equally important was the emergence of
Dedicated Gilt Fund envisaging 100 percent investment in Government securities, which
has made the Gilt Market accessible to small investors. In order to promote dematerialization,
the mutual fund industry introduced an innovative product facilitating investment solely in
dematerialized securities and exchange of any security in dematerialised segment for the
units of the scheme.