(Yicai Global) July 2 -- Tianhong's money market fund Yu'e Bao, the world's largest currency fund, shed CNY235.30 billion (USD35.40 billion) in the second quarter, the first decrease in one three-month period since 2014's third, China Securities Journal reported.

Yu'e Bao was worth CNY1.45 trillion by the end of the second quarter, a drop of CN235.30 billion as against CNY1.7 trillion (USD255.30 billion) at the end of this year's first quarter, per statistics from Beijing-based TX Investment Consulting.

Formed May 29, 2013, Yu'e Bao's initial scale was only CNY200 million, but on June 14 of that year, it allied with Alipay, allowing users to pay directly with the former, triggering its sharp growth increase.

It rose to CNY55.7 billion and CNY185.3 billion at the end of that year and had surged to CNY574.2 billion by the end of 2014's second quarter, only to fall by CNY40 billion in the third. It recovered its rapid rise to log significant growth in each quarter thereafter. It registered CNY1.14 trillion in the first quarter of last year, the first time it topped the trillion-yuan mark, statistics show.

It managed a fund of CNY1.58 trillion as of the end of last year, which rose to CNY1.70 trillion in the first quarter of this year before the decline.

The following factors drove the drop, insiders believe: first, government policy now calls for stricter regulation of currency funds and mandates that their management be on a par with their scale.

Second, the new rules have tightened the Transfer + 0-date (T+0) settlement redemption quota for the currency fund in recent months, per which buyers can only redeem up to CNY10,000 of one currency in a single day. This new limit took effect from July 1. These new measures have restricted the growth of currency funds.

Third, Yu'e Bao platform added two further funds -- Bosera Funds and ZO Fund -- on May 4 this year. It has also brought in Hua'an Ririxin Monetary Fund A and another two since May 20. Their inclusion has split Tianhong Yu'e Bao by conduiting money into them.

Currency funds are mutual funds under the control of a manager which engage solely in currency-related investments

Editor: Ben Armour