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The mutual funds market has been revolutionized in the past two months as the flexible bond funds, developed only recently by the banks, succeeded in attracting deposits of more than NIS 7 billion during this short period. These funds now manage a total of NIS 8.5 billion.

Last December, managers of such funds drew in an extra NIS 2 billion. This more than doubled in January 2002 to NIS 4.8 billion. The largest fund (Solid Optimum from the Bank Hapoalim group) administers funds of NIS 3.2 billion, of which more than NIS 2.8 billion was deposited in December and January alone.

The appeal of these funds has coincided with the sharp cut in interest rates (the Bank of Israel slashed the base lending rate from 5.8 percent to 3.8 percent in December) and its knock-on effect, the shekel's sharp depreciation. Investors have turned to the new category of mutual fund, which is not restricted to any one field or investment policy. These funds may invest in CPI-linked bonds, Forex-linked bonds or shekel bonds - however they wish.

The fund managers have taken advantage of a period of uncertainty in the market, during which investors prefer to see their funds invested in general funds, spreading the risk around over CPI, foreign currency and shekel deposits, according to the decisions of the portfolio managers. The figures indicate that the banks launched the right product at just the right time.