Punt on global currencies through money market funds

Playing the forex market and punting on global currencies real-time is a possibility now with money market mutual funds offering a chance to do so.

HSBC India yesterday launched various initiatives to tap resident Indians who are looking at diversifying their investment portfolio in terms of geographies and currencies with the launch of international mutual funds and forex time deposits.

It has introduced money market mutual funds from its range of offshore funds in Jersey, Channel Islands (UK).

"Investors can choose to enter and exit money market mutual funds with no entry or exit load in the designated currency of their choice," said Vijay Venkatram, head of wealth management, HSBC.

Through the scheme, an investor gets the flavour of the forex market on a real-time basis, unlike time deposit products that lock in currency for two to three months.

"This means, when the euro shows a decline, investors can buy the money market fund and as the currency appreciates, one can exit from the fund," said a senior bank treasury official.

Since the government allowed the free remittance up to $25,000 for investment purposes, banks have launched just time deposit products in various currencies that tend to lock in funds.

Without derivatives in the form of forwards option and futures, Indian investors could not leverage the volatility in the forex markets.

Also, many are not comfortable maintaining forex time deposits because of the volatility in global currencies, said a senior official of ICICI Bank.

Responding to this need, the bank proposes to introduce derivatives products on time deposits.

Meantime, the interest rate war seems to continue as banks introduce global products for resident Indians, offering more competitive interest rates over the London inter-bank offer rate (Libor) than their peers.

While the idea is to capture the resident Indian, a treasury official said: "Banks should offer deposit rates which make sense, especially since most banks can borrow at Libor."

Interestingly, HSBC's time deposit rates is the best in the market today, offering 110 basis points over the Libor against Citibank's offering of 100 basis points over Libor and ICICI Bank's 105 basis points over Libor.

According to Bhargav Dasgupta, head of international banking, ICICI Bank: "The promo offer is intended to popularise the product and to acquire customers for new products."