Does investing in Liquidbees make any sense?

Personal finance
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  1. The expense ratio of the ETF is 0.65% which is already on a higher side.

  2. If you invest in Liquidbees you receive dividends in the form of units. But the catch is you can’t sell the fractional units in the secondary market.

Zerodha support mentioned the process to sell fractional units as under:-

Please note, Fractional units can’t be sold on the secondary markets (exchanges). You will have to make an off-market transfer to Reliance mutual using DIS slip. Click here to know the exact procedure to redeem fractional units of liquidbees.

To know more about Liquid ETFs check out this post on TradingQ&A.

You will be charged Rs 100 + GST for the DIS booklet along with courier charges of Rs 100 + GST (the first 10 leaves are free) and 0.03% of turnover or Rs 25, plus 18% GST, higher of the two per ISIN for the transfer of shares.

Total selling cost =
DP charge of Rs. 8 + GST + Total 200+GST + Postage charges to send documents to Zerodha HQ + Time Cost in execution.

  1. Talking about the returns of Liquidbees, it’s about 3.5 - 4% which is below average. Not to forget, the fractional units remain unrealized because you can’t sell the fractional units. Moreover, you keep paying an expense ratio of 0.65% for the fractional units. And if you sell the fractional units using DIS slip, you pay a heavy fee which you have to subtract from the profits.

So the real returns are always less than what you think.

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  1. If >Rs 5000 dividend is received, there is TDS applicable.

When you consider all these points, does it even make sense to invest in Liquidbees at all?

A. If I want to keep funds safe, I can rather put that money in bank FD with fixed higher returns than Liquidbees, where I can withdraw at the click of a button and add money to my trading account immediately. Also, note that funds in a bank up to 5 lakh are secured by DICGC insurance.

B. If I want to invest in Liquidbees to pledge it for a margin, I can rather invest that money in an overnight/ Liquid Mutual Fund from the approved list of securities with a lesser TER, same 10% haircut for margin and same or even a little better returns. At least I would be able to redeem fractional units with Zero cost. Also, MF transactions have Zero DP charges as an advantage.

I would repeat my question once again, why would I invest in Liquidbees?

12 Likes
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I am waiting for someone to give pros. Even After reading it completely. I feel It doesn’t make sense to invest in liquibees.

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understand this for whom liquid bees it is
1)HNI and option seller uses liquid bees to use them as collateral
2)they buy liquid bees of 10 lakhs to 1 crore
3)now calculate 5 % on that amount it will be in thousands mostly which can be used for buying other assets ie gold bonds etc if they want
4) if you small investor invest in gsec bonds

3 Likes
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can gsec be used as collateral ; if yes . then why go for liquidbees ?

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sir i told for small investor in bond market to invest
not as collateral

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I have sold all my Liquidbees. As mentioned, the profits are never realised since they are fractional units.

I have Zerodha IDFC 3-in-1 bank account. So instead of investing in Liquidbees, I keep that money in my bank account which is 24x7 available, gives a return of 7% interest rate per annum, is safe under DICGC insurance up to Rs 5 Lakh, and I get a tax exemption on the interest amount up to Rs 10,000 under section 80TTA. Also there are no DP charges that I have to pay like while redeeming Liquidbees. Whenever needed, I add funds to Zerodha trading account with just a click.

Liquidbees is not for me.

9 Likes
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Could not find a better way to sum up my previous response :laughing:

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you have answered it yourself. Why would you. It makes no sense.

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@nithin,

Why don’t we have a Growth-based equivalent of Liquidbees ETF?

  1. Growth-based instead of dividend-based since dividends attract tax post Budget 2020. The fractional units received as dividends don’t grow further (only a whole unit gives dividend). The fractional units remain unused in your account which is technically a rupee loss, while the AMC is enjoying it being parked with them.

  2. Growth-based because fractional units of Liquidbees can’t be sold on the secondary market and one has to go via DIS route which is cumbersome, involves paperwork, and comes with a time cost and money cost. I am already struggling on this part personally. The fractional units are lying stagnant in my account which I need to get rid of but the process is so hectic.

  3. Currently TER of Liquidbees ETF is about 0.65% which is way too high compared to Liquid Mutual Funds which have a TER of 0.05 - 0.15 range. Compare it with the ‘peanuts’ returns it gives which is even worse than bank savings account interest rate.

I would request Zerodha AMC, whenever it comes to existence, to seriously consider the above-said pointers and rescue us with a growth-based alternate to Liquidbees ETF that is low on cost and is better in yield than the current dividend-option. This would also let go of the issue with selling the fractional units.

Another on my wishlist for Zerodha AMC is a Nifty 50 index-based ELSS fund which I had mentioned earlier.

Zerodha AMC can launch with two low-cost ETFs/ MF -

  1. Growth-based Liquidbees alternate
  2. Nifty 50 based ELSS

Both would help Zerodha AMC to increase AUM. A win-win for both investors and the AMC.

What do you think?

6 Likes
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the only advantage of the present form of liquid funds is that the price remains same. so there is no need to spend time on knowing whether it is the fair value

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In that case, keep your money in Post Office Savings Account (POSA) as discussed on this thread about returns from Liquid Fund:

  1. 4% interest rate credited at the end of the financial year. Higher than SBI Savings Account (2.7%), HDFC (3%), and even higher than last 1-year return of many Liquid Funds and Liquidbees ETF.

  2. POSA does not come under RBI, but directly under ministry of finance and commerce so has a sovereign guarantee. Money in a bank is safe only up to Rs 5 lakh under DICGC insurance. But even if you keep 10 Cr in POSA, it’s safe with a Govt guarantee earning a constant 4% interest amount.

  3. Tax exemption of up to Rs 3500 for a single account and Rs 7000 for a joint account on POSA interest amount every year.

E.g. If I keep Rs 1 Lakh in a single account, @ 4% interest I would earn Rs 4000 as interest amount but out of which Rs 3500 would be tax-exempted under section 10(15)(1). So only Rs 500 interest amount is taxable. If you keep 2 lakh in a joint account (say with a family member), @4% you would get Rs 8,000 as interest amount but out of which Rs 7000 gets tax exemption and you pay tax only on Rs 1000.

  1. Money is accessible 24x7 with the mobile app and Debit card. Even in the middle of the night, I can withdraw money. Unlike Liquidbees, you don’t have to wait for the market to open to access your funds.

  2. Other features like home-delivery of cash and deposit of cash from your home (now a paid service).

You may ask, if POSA is so good why do we need a growth-based Liquid ETF (and not a dividend-based)?
It would help investors reduce taxability with the indexation benefit of a debt fund, and no TDS because there are no dividends.

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one more clarification. cannt we combine the provision of POSA tax exemptions with the 10 k tax exemption for interest ??

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Yes. Absolutely.

  1. Rs 10,000 tax exemption under section 80TTA on savings bank interest.
    e.g. if I keep 2 Lakh in IDFC Bank, @ 6% interest I would get Rs 12,000 interest, out of which Rs 10,000 gets tax exemption under section 80TTA.

  2. Rs 3500 (Single a/c) - Rs 7000 (Joint a/c) tax exemption on POSA interest amount under section 10(15)(1).

So 1+2 = Total Rs 13000 - Rs 17000 interest amount can be tax exempted.

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Kotak bank gives savings bank interest rate of 3.5% now(was higher). You can also avail auto sweep facility. Transfer when needed. Liquid bees is useless.

For cash collateral, you can use something like ICICI Short term debt fund or similar too.

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Forget about FD - some banks give 6% interest on savings account.

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If you keep money in bank account …you get 7% interest ? is it savings account ? that means idfc gives 7% interest on savings account?

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IDFC Offers 6% interest rate for savings account under <1 Cr, you can find more details here:

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@rupeshmandal
I read the whole thread. According to my knowledge, benefits of Liquidbees:

  1. Interest/dividend while trading: If you transfer money from bank account to Zerodha for trading, then that money won’t earn any interest. But if you put that same amount in Liquidbees, then you will earn interest (although minimal) during trading as well
  2. Collateral: If you go for other ETFs, then you need 50% margin in cash because your collateral from other ETFs can be used for up to 50% for trading. But Liquidbees are treated as cash and no 50% margin in cash rule apply here
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As per the discussion on this thread, Liquidbees fractional units do give dividends. In my above post, I had mentioned that Liquidbees fractional units don’t pay dividends. I stand corrected here. Apologies, if the incorrect information published earlier has misled anyone.
Best

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I have recently invested in Liquidbees mainly because unlike earlier, I cannot buy MFs through Coin app. This means that I need almost a week to move funds from my trading account, back to MF and then pledge it.

I would have invested in my usual Money market fund if I could directly invest from my trading account.