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.
Why don’t we have a Growth-based equivalent of Liquidbees ETF?
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
@rupeshmandal
I read the whole thread. According to my knowledge, benefits of Liquidbees:
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
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
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
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.
You will only save one extra day. The day you were supposed to buy money market funds from your trading account, place a redemption request. Amount comes to your bank account next day by 9AM. Place order and make payment using coin.
In 2 days it will get reflected in your holdings.
If you go for liquid funds you do save a day. But considering the huge variation in returns, I do not think liquidbees are worth buying.
I personally do this on Thursday. Friday amount comes to my account. Place order on Friday. Comes to my holdings on Tuesday. Pledge on Tuesday. Get margin on Wednesday when usually margin requirement goes up.
I don’t know if or why traders choose Liquidbees but investors do, as they wait for the prices they want to buy at, or if want to buy something later, so it is better to put the funds in Liquidbees even for a week, which could turn into months too. Get some return even for one week, 2.5% p.a, high liquidity, sell when funds are needed, get 80% of the proceeds immediately.
You can be sure they are safer than all banks in country as country never fails to pay taxes i.e pay interest on those gsec bonds& t-bills.
IMO there are crazy investors that buy negative yeilds bonds like japenese treasury bonds to secure their money. They believe negative return is worth their safety
