What is the perfect cash collateral security at present scenario. I have gilt fund that doesn’t give any return from past 1 year. So any alternative to this?
Overnight or Money market fund. If you believe gold will rise, sgb.
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Zerodha Liquid ETF (LIQUIDCASE) and Nippon Liquid ETF (LIQUIDBEES) are good options with 6% haircut. I prefer Zerodha Liquid ETF (LIQUIDCASE)
Money market funds offer slightly higher returns than LIQUIDCASE, but I prefer LIQUIDCASE because it has a lower haircut (~6%) compared to money market funds (~10%).
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I think funds are better than ETFs as the expense ratio is atleast 3x.
Zerodha Overnight fund expense ratio:0.08%
Zerodha Liquid Case: 0.26%+ demat charges
This would be significant at only 4% or lesser returns
| Feature | Zerodha Overnight Fund | Zerodha Liquid ETF (LIQUIDCASE) |
|---|---|---|
| Structure | Standard Mutual Fund | Exchange Traded Fund (ETF) |
| Expense Ratio(A) | 0.08% | 0.26% |
| Assumed Annual Return (B) | 4.00% | 4.00% |
| Fee as % of Returns (A/B) | 2.00% | 6.50% |
| Liquidity | T+1 Redemptions | Instant (Sell on exchange, but still may not go to bank in T+0 day based on Zerodha rules ) |
| Exit Load | None | Brokerage and demat charges apply |
Disclosure: Table partially created with AI
TREPS - CCIL - The Clearing Corporation of India Limited close to 5% than 6%
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In addition, Zerodha Overnight fund has a haircut of 5% which is better than LIQUIDCASE
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I was doing the same reserch today as I was planning to invest my last year’s profits into some liquid funds to generate more margin. This reply sorts this question for me. Very good post with clear table of all the points to be considered.
How about SBI LIQUID FUND DIRECT PLAN GROTH? I think the LIQUID FUND gives slightly better returns than overnight funds. It matters when the amount of investment is large as say 50 Lacs or so. What is your opinion on this. I don’t know about the hair cut of liquid funds…though.
LIQUID FUND gives slightly better returns than overnight funds but there is a difference of 4% to 5% in the hair cut.
Money Market Funds are slightly better than LIQUID FUNDS. Money Market Funds and LIQUID FUND both have a haircut of 10%
Cash components by returns (highest → lowest)
- Money Market Funds
- Liquid Funds / ETFs
- Overnight Funds
Liquid only if you need instant redemption and that too not more than 50k and that should be outside Zerodha as Zerodha doesn’t support instant redemption. If not, go with money market funds. I would also diversify with gilt/bonds because if interest rate goes lower you’ll gain a lot. Staggered addition of interest rate risk for some potential returns
Thanks for these inputs. I don’t intend to redeem for next 3 yrs. atleast. So money market funds make sense with better returns and increasing cash colateral as NAV increases.
Gilts can be considered with interest rate risk in mind.
Also SGBs…
One more good option is Arbitrage funds. Similar returns as Money Market + tax advantage as it is treated as EQUITY. Note: This is a non-cash component. You can go for it if you don’t want to pledge it.