China's fund management companies are awaiting the nod from the securities watchdog to launch the country's first money-market fund.

Huaan Fund Management Co and China Merchants Fund Management have filed applications with the China Securities Regulatory Commission (CSRC) to set up the funds, which target money-market debt instruments such as short-term treasury bonds, market-rate certificates of deposit and commercial paper.

Currently, the mutual funds on the mainland invest mostly in equity and bonds.

China Merchants Fund, the country's first fund-management joint venture, had planned to include a money-market component in its umbrella of funds launched in March, but was not allowed to do so because of regulatory concerns, insiders said.

The Shenzhen-based company is actively working on the product, a company spokeswoman said yesterday, adding: "We are waiting for CSRC to give a clearer picture."

Shanghai Huaan Fund Management has similar plans. General manager Han Fanghe recently told reporters that the company had entered the final stage of preparation for the money-market fund and aims to launch it within the year.

"We submitted our application to the CSRC recently," a Huaan spokeswoman said.

The new fund will benefit both investors and fund managers, she said - the market has been looking forward to new investment tools; while fund managers have been working hard on innovation products to attract more investors.

A CSRC spokesperson said no decision had been made yet in the matter.

If approved, the funds would directly open the money market to ordinary investors and also help banks spread their risks, analysts said.

While money funds have been popular in Western countries for decades, China's nascent market has been limited to a few types - open-ended funds were not introduced till 2001; and bond funds have become popular only over the past two years.

However, the approval of money funds depends on the maturity of the market and formulation of relevant policies, said Zhou Ming, an analyst with TX Investment Consulting.

The innovation is good for the fund industry because it would introduce more investment tools outside the capital market, but the money market still lacks flexibility and sufficient credit management, she said.

Moreover, it also requires amendment of existing policies that spell out investment limits for fund managers.

The segregated regulatory system of banking, securities and insurance does not allow the three financial arms to enter into each other's business. Investment funds are still defined as securities-investment funds, so to invest in the money market will need the approval of policy-makers, said Gou Dajin, an analyst with Kunlun Securities.

With individuals locking up more than 1 trillion yuan (US$120 billion) in bank deposits, China has been encouraging people to invest more in the capital market; but the lack of investment tools has meant that response has been poor.

Compounding the situation is the bearish stock market over the past year, which made investment in equities unattractive.

Fund managers should come up with more diversified products to cater to the needs of different investment groups and upgrade their investment portfolios to spread the risks, experts said.

(HK Edition 06/19/2003 page7)