Mutual funds - Temporary parking of idle cash

Dear Friends,

As I type here Nifty is heading towards 10700 (again!). I wanted some help on how to park my idle cash (funds in zerodha) so that I can invest into stocks when they “crash”. I have a decent knowledge about mutual funds.

Which category of funds should I invest in temporarily (say for one-two months). I need a flexibility to withdraw from the funds anytime. Hence exit load should be 0%. Nice to have - Post-tax returns should be greater than 4% :stuck_out_tongue:

I can see these categories - short term, ultra short term, debt etc. in moneycontrol website. Which one should I choose? Please help.

Hi @rbtj,

Liquid mutual funds is the thing for you.

What are Liquid Funds? http://www.mutualfundssahihai.com/en/What-are-liquid-funds

Cheers,
Lindo

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Liquidbees

No redemption time. Gap

Immediate redemption
Interest paid as dividend so not taxable in your hands (until a limit of 10Lac/yr)
Can be sold in live. Mkt and margin used for buying. Stk

Interest rate of 5-6% based on debt issued by GOI and other govt. Debt (exact specs on their website)

Managed by reliance mutual. Fund ltd

Hi Mate,
Can NRI’s subscribe to the liquidbees fund you mentioned??

Liquid funds. They give you 6-6.5% p.a pre-tax .
Avoid other funds in the debt category, as of now.

If you have access to India equity mkt
Then you can buy liquidbees

thanks mate. I invest in MFs, so hope that should work

This is not a mf

If u have access to buying any equity stk on nse
Then you’ll be able to buy this

Liquid bees
Buy on nse
Liquidity on bse is lower

Price oscillates btwn 999.99-1000.01

Thanks Som. I looked into the Reliance liquid bees as you suggested.
When I checked some liquid funds I saw the below:

It appears Birla SL or Baroda is performing better. Am I missing something?
I was wondering if liquid bees offer any advantage over them?

Also if I hold liquid bees for a week and sell will i get dividend, as it’s mentioned that they credit monthly dividend?
Thanks for your time.

Liquidbees (LB) is a ETF, whereas the others are regular Mutualfunds.

A MF will have its own redemption time, and may or may not be immediate in real time.
Depends on which platform u purchased it from (coin or direct or otherwise), and also the way the fund works etc.
Some funds may also have an exit load (Which is basically a charge for leaving before 1 yr after purchase or 2 years. This varies from fund to fund, The exit load is typically 1-2% of the capital invested)
Further, when the amount will reach ur account etc vary.
And after u redeem the $, you’ll have to trfr this to ur Zerodha ac to take a trading position or buying stk, which is not practical, since the time required for the process may be long.

if u want an investment in a debt fund or whatever, then the funds you’ve mentioned may be better options than LB.

But if ur purpose is to make some interest from $ which ]you primarily want ot use for trading/buying stk, then LB is best.

LB is a ETF. Which means its traded on the exchange itself like a regular stk.
This is used by traders/investors to avoid having money sitting idle, but their primary intent is not to profit from the fund, but to get some $ for their idle money, while retaining the ability to instantly liquidate the fund and use the $ for taking a position in the mkt.

Example - u have 1000 LB, (INR 1000x1000 = 10lac)
And if u want to buy a stk or take a position in the market, then u sell the 1000LB at market, and instantly u get 10lac worth of margin from ur broker, which can be immediately used for purchases in the mkt, Stk delivery or F&O positions or intraday cash positions etc.

Some traders use LB as collateral (Zerodha offers 90% margin, for pledged LB), for trading.

So if a future lot requires 70k margin, instead of 70k cash (which will otherwise generate NO returns), u pledge 70 LB, (which will give u the benefit of some return), and also get to take ur futures position.

Do keep in mind that M2M has to be in CASH. And not collateral. So be very careful. Generally keep the worst case scenario (wherever ur stop loss is, as cash, and the rest as collateral)

Going forward, in Oct, commodities and stk exchanges are planning to merge, in which case LB can be pledged or liquidated, for taking commodity positions too. Right now u can’t do this as Commodities requires a separate account (as you’ve seen in Zerodha),

Also, if u want cash withdrawal, keep in mind that’ll only be available on T+2, and ur broker will process that on T+2 or T+3, subjec tto settlement/trading holidays. Instant redemption is only usable for taking new positions in the mkt and not for cash withdrawal…

One last advantage, is that LB gives u dividend, which is ur only profit. Ur profit in LB DOES NOT come from change in the NAV.

So some months, if the debt instruments that LB has invested in give low return, you might get low return, however the price of LB is always btwn 999.99-1000.01.
There are some spikes in LB chart (all the way to 950), but those are freak orders for extremely high quantity during low liquidity conditions like immediately after mkt open etc,and within seconds LB always recovers to 999.99-1000.01

Except those freak transactions, LB chart is always flat.

Therefore, you can redeem at any point of time, without having to wait for a “favourable” valuation, or u don’t have to be concerned about changes in LB’s NAV etc.

All those concerns go out the window, which is why the exchanges and brokers treat it as a cash equivalent.

The same does not hold true for regular MFs.

NOTE - Yes, u will get a dividend if u hold for a week only. It will be credited on a monthly basis. However it may be a fractal unit (less than 1 unit), in which case although ur demat (NDSL/CDSL stmt) will show it, Zerodha won’t show it, since 1 full unit is the minimum tradable quantity.
Dividend will be on basis of accepting delivery only. Intra day LB won’t give u dividends.

For a fractal unit u need to contact Reliance mutual fund (which runs LB), and they’ll just redeem it for u.

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Thanks Som. Very detailed explanation and I was immensely benefited. Thanks and Cheers :slight_smile:

Glad to help!
Cheers!