In case you are looking for yet another investment option to park your idle funds for short term then liquid ETFs can be a choice for traders and investors in stock markets. These are passively managed debt funds that have their benchmark as the overnight rates.
So, unless some suitable opportunity to deploy your funds is known to you, you can park your idle cash in liquid ETFs.
Suitable for whom?
As per investment experts, these are suitable for traders and investors in stock markets who after getting out of some position in the share market may ask the broker to buy liquid ETFs for the time being of the amount received after selling stake in a particular stock or as the case may be.
This is lucrative as the investor or trader is able to reap above average returns from even this amount until the proceeds get transferred to the trading account of the person concerned.
The settlement in liquid ETFs i.e. units in them are transferred to a person's demat account after T+2 days.
The liquid ETFs are also allowed to be used as margin money in the derivatives segment.
Liquidity is not the issue
Reliance Liquid BeES is the most actively traded ETF in the country and as per data post tax return from them has been between 11-13% on a daily basis which is more than the returns from the savings account bank. The investment in these funds is good for a month's time.
Nonetheless, the liquid ETF category carries a higher expense ratio of over 50 bps and also the value chain eats into the returns from the ETF. Also there is a dividend distribution tax which further reduces returns from these funds.