Big Yields for the Little

The nation's money markets traditionally have reserved their highest interest returns for the best-heeled investors. The individual who can buy a $100,000 bank certificate of deposit, for example, currently gets an average return of 8.3%; the one with only $1,000 can buy a piece of paper from a savings bank yielding 7.08%--but unlike the big investor, he must tie up his money for at least 2 1/2 years. Now, however, at least four mutual funds have been organized to give the small investor a crack at the high yields--a move that seems likely to put them into head-on competition with savings banks, savings and loan organizations and other thrift institutions for small savings.

The funds take initial investments of $5,000, $10,000 or even less, pool them and invest them in "short-term money market instruments"--large-denomination C.D.s, U.S. Treasury bills (which yield 7.6% but usually are available only in blocks of $10,000) and other high-yielding paper. Typically, they prefer maturities on these instruments of less than 45 days. The funds generally charge a fee of .75% to 1% of the investment, but no other commission or sales charge; interest earned is calculated daily and credited to each investor's individual account. An investor can cash in some or all of his shares at any time for principal plus interest accrued up to the day of sale. In effect, he has the convenience of a day-of-deposit to day-of-withdrawal account at a savings bank or S and L--on which the maximum interest rate is limited by law in most states to 5 1/4%. Yet unlike the stock-market investor, he takes next to no risk that the value of his investment will drop.

Out of Stocks. The largest of these liquid asset funds, the Reserve Fund Inc., began accepting purchases from the public in October 1972. In the short time since then, it has attracted $138 million from 10,000 accounts (minimum: $1,000 each)--even though it has been promoted by word of mouth among investment counselors, brokers, corporations and bank trust departments. Bruce Bent, vice president and treasurer, says that many people, "punchy from the stock market, are taking their money out and putting it in the fund." Indeed, about a third of the investments have come from brokers who have put to work cash that their clients have received from sales of shares and are not ready to put back into the stock market. The clients might otherwise have withdrawn their cash from the brokers' control.

The Reserve Fund's phenomenal growth rate has prompted organization of several similar funds in recent months. Among them are Dreyfus Liquid Assets, Inc.; Anchor Reserve Fund, Inc., which takes investments as small as $100 initially and $25 thereafter; and Money Market Management, Inc., of Pittsburgh. How well they will do at a time when many interest rates have dropped a bit from their 1973 peaks is moot. Donald Pitti, president of Wiesenberger Services Inc., which among other things publishes analyses of mutual-fund investment records, believes that the new funds are "a product of high interest rates and not a major trend." But they represent a rare fresh idea in the management of small investments--and some strong potential competition for the banking business and the stock market.

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