For those who don't live in New York, San Francisco, or other centers of financial activity, investing in a money market fund means shipping cash out of their local communities. Last year, the top 10 money market funds invested more than half their assets in big money-center banks in major metropolitan areas.
Visa USA, best known for its familiar blue-and-white credit cards, is proposing to divert some of this flow of funds with a controversial money fund designed to keep cash in investors' hometown depository institutions.
''Minimally, we'd be flowing cash back to regional banks,'' says Charles Russell, president of Visa USA. ''Then we'd encourage regional banks, through their network of banking correspondents, to flow money back into community institutions. There's nothing magic about a bank east of the Hudson or west of the San Francisco Bay.''
Visa's proposal was the subject of Securities and Exchange Commission hearings this week. But the SEC, concerned about investor safety, has turned down the proposal once before. By contrast, the commission has already approved a money fund run by MasterCard, Visa's main competitor.
Visa's money market fund ''might have a significant effect on the development of the money market fund industry,'' an SEC document cautions. Many observers feel Visa is once again going to get a red light from the government.
Visa USA would run its money fund in concert with its members - the 12,000 depository institutions which are members of Visa or Visa International. These member banks and S&Ls would sell shares in the fund, each customizing the retail product with its own features (such as check-writing) and minimum-balance requirements.
Visa - not its members - would be responsible for advertising the fund. Assets would be managed by Alliance Capital Management, a subsidiary of Donaldson, Lufkin & Jenrette Inc. According to a registration statement filed with the SEC, investments would be ''primarily'' 14-day certificates of deposit.
But it is the fund's ''reflow'' provision that has raised the hackles of the SEC and the mutual fund industry. To keep dollars working in local communities, the Visa Fund would make a point of buying the CDs of its member institutions, ''in the approximate amount of fund shares held . . . by customers of that particular institution,'' the registration statement says.