Online fund yields still falling

Return rates from online monetary funds have fallen steadily over the last two months, and analysts said Sunday that returns are likely to drop further as liquidity pressure eases.

As of Sunday, annualized returns from some online monetary funds have dropped below 5 percent.

Monetary fund Caifubao, jointly operated by Internet giant Tencent Inc and fund firm China Asset Management Co, offered a seven-day annualized return of 4.912 percent on Sunday, compared to around 6 percent at the beginning of March.

Yu'ebao, managed by Alibaba Group and Tianhong Asset Management Co, saw its annualized return drop to 5.029 percent on Sunday, down from around 6 percent two months ago.

Cunqianguan, an online monetary fund launched on April 22 by Internet firm Sina Inc, also saw its annualized return drop to 4.96 percent on Sunday.

"The drop in returns reflects liquidity changes in the market," Zhang Daosheng, a spokesman for Alibaba's third-party payment system Alipay, told the Global Times on Sunday.

Zeng Linghua, chief analyst at Shanghai-based fund consultancy Howbuy, noted that the returns from online monetary funds may drop further to between 3.5 percent and 4 percent this year, as liquidity is likely to ease moderately.

Online monetary funds have become an attractive alternative for investors since the launch of the first one, Yu'ebao, in June 2013.

The return from Yu'ebao rose to around 6.5 percent in January, while commercial banks only offer an interest rate of around 0.35 percent for demand deposits.

Yu'ebao had attracted over 81 million users and investment of 541.3 billion yuan ($86.5 billion) by the end of the first quarter, Tianhong said in April.

Feng Lin, an e-commerce analyst at Hangzhou-based China e-Business Research Center, noted that online monetary funds may lose some of their clients as the returns continue to drop and as commercial banks introduce wealth management products with slightly higher returns.

For example, according to data from Web portal yinhang.com, a one-year wealth management product offered by China Guangfa Bank with a minimum investment of 50,000 yuan is expected to generate an annual yield of some 5.7 percent.

However, Zhang at Alipay believes that Yu'ebao will not lose many clients as it offers convenience and greater flexibility for customers, allowing them to withdraw their money whenever they want.

Tencent and its partner China Asset Management Co were not available for comment on Sunday.

"I won't withdraw my money from Yu'ebao even if the return drops to 3 percent, as it is very convenient to be able to withdraw the money and make online purchases," Zheng Yi, a 29-year-old university teacher in Beijing, told the Global Times on Sunday.

"Online monetary funds represent the future trend in wealth management as people are gradually moving online to make their purchases," said Howbuy's Zeng, adding that both Internet firms and commercial banks will strengthen their presence in online monetary funds in the future.

The government is also enhancing regulation of the sector as online monetary funds are gaining rapidly in popularity.

Media reports in March said that the People's Bank of China (PBOC), the central bank, is mulling new regulations for the third-party payment sector, which may place restrictions on transfers to online monetary funds like Yu'ebao.

Sheng Songcheng, an official at the PBOC, published an article on Tencent's Web portal qq.com on Sunday, saying that online monetary fund operators should be subject to reserve requirements in order to control risks.