Best Cash Component in 2024-25


I have some extra cash holding. I want to invest in some Cash component so that I can pledge it. What are your recommendations?

My Thoughts

  1. Nippon Money Market Fund (Currently using, my default cash component)
  2. SGB Gold Bond (Currently using, my default cash component)
  3. Liquid Fund ( I think it gives less than Money Market funds )
  4. Liquid ETF (Liquidcase, No idea how much it would yield)
  5. G Sec ( Hedges credit risk but hard to track as interest payout to the bank )

Kindly give me your suggestions. Thank You :pray:


I would strongly suggest you not to go for liquid instruments. I’ll explaing why. The best kind investment for making up your cash component is Target Fund.

Target Fund:

  1. These are funds that invests in govt securities of a specific tenor. Example: SBI Crisil 2028 Fund would invest in Govt Securities maturing in 2028.
  2. Major benefit is that you will get about 7-7.8% CAGR if you hold it till maturity.
  3. Seamlessly pledged for meeting margin requirements. Will get upto 90% of the collateral (10% haircut)
  4. In case you want the funds later, you can place a redemption request and get your money back.
  5. This is better than investing directly in GSecs because you will not get frequent interest payouts which is a pain to keep a track of and reinvest efficiently. These funds will reinvest the interest payouts and keep compounding.

Now I will come to the reasons why Liquid Funds and Money Market (MM) Funds may not be a good idea:

  1. The return is not good. You will be pledging the instruments but the ROI on these investments is about 3-4%. Yes, it is safe but why wouldn’t you go with a target fund as mentioned above or a direct investment in Government Sec where you can get 7-7.5% yield in today’s interest rate environment.
  2. If you’re thinking it’s liquid so it’s good, then the thought process is flawed. It is because you shouldn’t pledge the money you think you will need in the near future. If the money is required, it is better not to use it for pledging. Use money which you have earmarked for the future so that immediate requirement will not arise.

But you may have a different viewpoint that may hold valid for you. But do consider the points above before making this decision.

Wish you all the best.


If you are in top tax brackets, then choose Liquidcase ETF, or one of the liquid Mutual Funds (Aditya Birla, HDFC etc.)

If you are not in top tax brackets, and will like some regular returns, then buy GSecs from secondary market. Since liquidity is low, you might need to wait a few hours/days to get a fair price.

Agree to not go for gsecs directly to avoid interest taxation.

But there is no issue with going for debt funds. gsec has no credit risk, money market / liquid will have some tiny credit risk. I keep a mix of overnight ( safest), money market, liquid and gsec/dynamic.

Wrong, yield changes. You are looking at yields around covid which is in the past. These days yields are > 7% easily for money market funds. Look it up.

I wish we had a short term gsec fund ( say around 1-2 year). Would have been best for pledging, Problem with target fund is that eventually they will return money and you will have CG on slab income. I just plan to keep holding these until i actually want to sell, so i don’t use them.

In general, money market yield > liquid fund > overnight / liquidcase. And reverse for risk, although they are all low risk.

Long term gsec has duration risk, can also work well if yields drop. But instead of that, might as well go for gsec mutual funds to avoid taxation on interest.

gold is gold, it can go up and go down too.

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Thank You. I will check it out.

Assume you have invested in 2028 target fund, then what will happen in 2028, does the amount automatically gets credited back to your bank account or the amount gets transferred to another target fund?

@Anshul_bishnoi the fund closes down and the final amount will be transferred to your bank account.

As per the April 2023 amendment, I think there are not Indexation (tax )benefits for new purchases. Kindly recheck and correct me if missed anything!

Thanks for explaining a new fund which wasn’t in my mind!
Aren’t these similar to Bharat Bond?

Compared with Direct G Sec purchase

No yearly tax payments on Interest Recd.

Gone through their documentation, consider the expense ratio (0.50% to 0.28%)
No tax benefits as earlier, returns comparatively less due to expense ratio

Happy to get corrected!

My opinion
G Sec

Yes, so gsec direct pays out regular interest. So you will have to pay tax every year.
But in mutual funds , this gets delayed if we don’t sell and so we can keep compounding it.

Now, if income is within tax limits, then gilts direct could be better otherwise MF - esp for higher tax rate.


hai i invested in GSEC only - every month i can get 50k intrest payout i will reinvest in small cap mutual fund - direct gsec have lot of benefit - like no expense ratio, and regular ontime credit in your bank account


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By the way, are they similar to Bharat Bonds else how?

I am not familiar with bharat bonds, probably psu company bonds.

gsec is from goi, no default risk. Can have duration risk if maturity is far away.

Bharat Bonds are basically Target Funds, they come with a maturity date like Bharat Bond 2030 is a collection of bonds maturing around that time. It’s an ETF not a mutual fund. Serves the same purpose, though

2 drawback of gsec are

  1. Tax on credit interest
  2. No value compound, Investment remain same so the margin after haircut.