Money: Fear of Finance

The Morgan Grenfell fiasco is no nearer clarification than it was a week ago, but it is increasingly clear that investors who have sold back almost pounds 300m worth of units did not really need to. Their money was safe anyway.

Nervous unit-holders had exhausted by mid-week most of the cash that Deutsche Morgan Grenfell initially made available to redeem all unwanted units offered it, and to keep the market in them open. But Deutsche Bank's resources are adequate to redeem every one of the remaining pounds 1bn worth of units if necessary, and its determination to do so if required has not been seriously questioned.

Indeed, its credibility as a player in the London and international markets depends on its ability and its willingness to do everything necessary to protect investors against the consequences of the fund manager's irregular actions.

This does not mean that unit-holders can expect protection against a drop in value of their investments due to genuine market movement, but it is reasonable for them to expect to be protected against activities which break the investment rules of fund management.

It is also clear that holders of other unit trusts and investment trusts have no real reason to fear the problem will spread, either to other Morgan Grenfell funds, or to other managers' funds invested in European companies, or into other stock markets, in the UK or abroad.

But it does mean that investors will inevitably ask themselves, what if the same problems had arisen in funds managed by other smaller, specialist players, and especially those which are not backed by an international player like Deutsche Bank.

It does also mean that investors putting new funds into unit trusts and investment trusts will turn their money over once or twice more before they invest with the smaller fund managers, who in turn may become more vulnerable to a takeover.

This is a pity, but an unavoidable one. It also means that investors will look more closely at products which have the word guaranteed in their title. They are not always brilliant investments because guarantees have to be paid for somewhere along the line, either in direct charges or at the expense of the income, which over a five-year life should be worth about 25 per cent on top of the capital in an unspecialised investment fund.

But investors will not be quite so ready to put new money into investments which could lose value. Insurance companies like the Pru and Legal & General selling "with-profits" funds anticipate an influx of business at the expense of unit trusts. This may not ultimately be a bad thing if the UK and US stock markets in particular are more likely to fall than rise over the next year or two after their sustained rise in the last two years.

It also means that UK fund managers' hopes of capitalising on their superior investment track record by selling standardised products in the form of open-ended investment companies (Oeics) to European investors have taken a bit of a tumble.

The starting date for Oeics had already been put back to the new year and a further delay now seems inevitable while UK managers recover from the inevitable black propaganda their European rivals will be employing, not least in Switzerland, Luxembourg and even Dublin.