Alibaba to debut fixed-term investment

After rolling out China's first Internet finance product, Yu'E Bao, in June last year, Alipay, the e-payment arm of Alibaba Group Holding Ltd, is set to launch its first fixed-term wealth management service on Friday in a bid to offer an investment choice for those who are willing to wait longer for bigger returns.

The new service, open for reservations between Sunday and Thursday, will be released only to Yu'E Bao users. The minimum investment is 1,000 yuan ($165), and the maximum is 2 million yuan per investor.

Compared with Yu'E Bao — which allows users to invest their idle cash in a money market fund run by Tian Hong Asset Management, in which Alibaba holds a majority stake, and make withdrawals whenever they want — the new product requires users to deposit their money for an entire year.

But with the attachment of more strings comes greater returns. The advertised annualized interest rate is 7 percent, or about 0.83 of a percentage point higher than Yu'E Bao's rate on Monday.

The new product is seen as Alipay's second major move into Internet finance.

Within four months of its launch, Yu'E Bao became the largest money market fund in China, with reportedly more than 250 billion yuan under management and 49 million users as of mid-January.

Its popularity has prompted many Internet companies and fund managers to follow in its footsteps. Chinese Internet giants, Baidu Inc and Tencent Holdings Ltd, have also launched wealth management products co-managed by fund companies.

According to Wang Weidong, an analyst at iResearch Group, a Beijing-based consulting firm, though Yu'E Bao is a successful product, Alipay needs to have a diversified product portfolio to increase its user stickiness.

But even more important, the bigger the Yu'E Bao fund becomes, the more "liquidity" pressure it shoulders.

"Since people can withdraw their money from Yu'E Bao whenever they want, Yu'E Bao needs to prepare a lot of cash every day in case people want their money back.," Wang said.

"The more money that is available for people to withdraw, the less is available for the company to make investments," said Wang, adding it may be harder for Yu'E Bao to maintain its high returns given its huge size.

The new fixed-term wealth-management product will help Alipay alleviate the pressure, he said.

The launch of the fixed-term product comes at a time when many Internet finance products have seen their annualized interest rates drop.

For example, Tencent's Licaitong was at 6.79 percent on Monday, down from its peak of 7.8 percent in late January.

Huang Zhen, director of Financial Research Institute with the Central University of Finance and Economics, said that it is natural for the returns of such products to change from time to time since they are money market funds mainly consisting of interbank loans and some short-term debt securities.

Spurring the higher interest rates was the fact that Chinese banks lacked sufficient deposits before the recent Spring Festival.

"However, with the marketization of interest rates, it will be more difficult for money market funds to get high returns," Huang said.