Everything you need to know about Liquid Exchange Traded Funds (ETFs)

[kartikbhai]

• Can we pledge liquidbees or other liquidETF for MIS trades in equity and commodity segment?
  YES
• And in CDS?
  YES

[Divesh_Garg]

HI sir
Variation in price of liquidbees like 980,990 etc . is it due to supply and demand of units ? or a third factor is at play here?

Pledge of units is valid for how much period?

[Nishantr]

@Bhuvan

. You can only use the collateral margin only for F&O trades.

• Can we use this for overnight Currency Segment futures trades?

• Can we use this for equity intraday cash segment trades?

[HSL]

As per your statement;;; will i get the dividend if i hold for just 5~7 days … ?

[siva]

@Nishantr

Can we use this for overnight Currency Segment futures trades?

Yes.

@Nishantr

Can we use this for equity intraday cash segment trades?

No.

[Bhuvan]

Everything you need to know about Liquid Exchange Traded Funds (ETFs)

What is a Liquid ETF/Liqudbees and how does it work? Liquid ETF or a Liquid Exchange Traded Fund (ETF) is designed to provide you a low-risk return and high liquidity. It trades on the exchanges (NSE and BSE) just like a stock. Note: Zerodha AMC has a new Liquid ETF coming soon. You can check out the details here: Zerodha Nifty 1D Rate Liquid ETF How does a LiqudETF/LiquidBees work? The way this instrument works is actually quite interesting. The price of the ETF stays constant at Rs 1000 an…

[Nishantr]

@siva

No.

Thanks for the response @siva

I just found the below comment by @nithin on Z-connect

Now, this is a little confusing. You said No. He says it can be done, but discourages it.

[siva]

@Nishantr

Now, this is a little confusing. You said No. He says it can be done, but discourages it.

Ideally one should not be doing as that is the right thing, as he mentioned our system allows it though.

[Prakhar_Agrawal]

According to regulations is it allowable or illegal because if it is prohibited then it may be a problem

[Nishantr]

So, does regulations allow it? Is it illegal/illegal to do so? Any clarity on it @siva ?

[VenuMadhav]

Hey, regulation doesn’t really cover these aspects. They set broader guidelines for brokers to comply with.

I’m not sure if you’ve seen SEBI’s circular that came out yesterday: https://www.sebi.gov.in/legal/circulars/nov-2019/collection-and-reporting-of-margins-by-trading-member-tm-clearing-member-cm-in-cash-segment_45011.html

It’s now mandated that brokers collect and report margins for Equity positions too. In the unlikely event that you use collateral margins to trade intraday, aren’t able to cover the position for whatever reason, you’ll have to pay penalty if your margins are short, not to mention the interest on debit balance, if any.

[rupeshmandal]

@Bhuvan

Good question. The returns in Liquid ETFs are in the form of dividends they are subject to a Dividend Distribution Tax. Before Budget 2020, a flat DDT of 28.84% was applicable. Post the budget, dividends are now taxable in the hands of the investors at their income tax slab rate. Plus a TDS of 10% will be applicable on mutual fund/ETF dividends once the dividends cross Rs 5000.

1. Does DDT abolishment mean more dividend units would be earned w.e.f April 1st?

2. 10% TDS on Dividend units is applicable. But when will it kick in? Because dividend units are paid out on a monthly basis and TDS is applicable when the dividend amount exceeds Rs 5,000.

[Bhuvan]

@rupeshmandal

Does DDT abolishment mean more dividend units would be earned w.e.f April 1st?

Depends on your tax-slab. If lower, then yes, your effective returns will be higher.

@rupeshmandal

10% TDS on Dividend units is applicable. But when will it kick in? Because dividend units are paid out on a monthly basis and TDS is applicable when the dividend amount exceeds Rs 5,000.

Will be applicable post 5K.

[rupeshmandal]

Thanks @Bhuvan
Shouldn’t there be a growth option for Liquidbees? Not Dividend Reinvestment.
Like how Niftybees and Juniorbees are. Isn’t it high time.

[rupeshmandal]

@Bhuvan

10% TDS on Dividend units is applicable. But when will it kick in? Because dividend units are paid out on a monthly basis and TDS is applicable when the dividend amount exceeds Rs 5,000.

Will be applicable post 5K.

This got me thinking -

1. If the Liquidbees Dividend units are less than 5k, there is no TDS but once Dividend units exceed 5k, would TDS be applicable to units more than 5k only or also applicable to the units which are already paid monthly in the past in that FY?

2. I have a Dividend reinvestment MF and also Dividends are paid by individual companies also. So how does the “TDS applicable when Dividend exceeds 5k” rule apply here. Because individually, the Dividend may not exceed 5k. But when you add all of them the total Dividend earned certainly exceeds 5k.

@Quicko can you help how is the TDS calculated?

[Quicko]

@rupeshmandal

If the Liquidbees Dividend units are less than 5k, there is no TDS but once Dividend units exceed 5k, would TDS be applicable to units more than 5k only or also applicable to the units which are already paid monthly in the past in that FY?

If the Dividend exceeds Rs.5000, TDS would be deducted at 10% on the entire Dividend Amount during the financial year.

[HSL]

@Quicko

TDS would be deducted

how will the investor get the TDS certificate ?

[Quicko]

[quote=“rupeshmandal, post:40, topic:53116”]

1. I have a Dividend reinvestment MF and also Dividends are paid by individual companies also. So how does the “TDS applicable when Dividend exceeds 5k” rule apply here. Because individually, the Dividend may not exceed 5k. But when you add all of them the total Dividend earned certainly exceeds 5k.

The condition to deduct TDS is for each Company. If a Company pays dividend to a shareholder of an amount exceeding Rs.5000 during the financial year, it is required to deduct TDS at 10%. A Company can issue dividends to multiple shareholders and should check the limit of Rs.5000 for dividend paid to each shareholder for each financial year. Similarly, a shareholder can received dividends from multiple companies. While the entire amount of dividend is taxable, TDS would be deducted on dividend which is in excess of Rs.5000.

[rupeshmandal]

@Quicko

Similarly, a shareholder can received dividends from multiple companies. While the entire amount of dividend is taxable, TDS would be deducted on dividend which is in excess of Rs.5000.

So let say I receive Rs 4000 dividend from Company A and Rs 2000 dividend from Company B, though the respective dividends are < Rs 5000, but the total sum is Rs 6000 > Rs 5000. So while individually, the companies won’t deduct TDS, but what do we tax payers need to do in such case while filing ITR?

[Quicko]

@rupeshmandal

So let say I receive Rs 4000 dividend from Company A and Rs 2000 dividend from Company B, though the respective dividends are < Rs 5000, but the total sum is Rs 6000 > Rs 5000. So while individually, the companies won’t deduct TDS, but what do we tax payers need to do in such case while filing ITR?

In that case, neither of the Company would deduct TDS on the dividend paid since it is less than Rs.5000. On the other hand, you (investor) should report total dividend of Rs.6000 as a taxable income in the ITR.
IMP: This provision is applicable from FY 2020-21 since the amendment was introduced in Budget 2020. Upto FY 2019-20, the company was liable to pay DDT (Dividend Distribution Tax) but it was not required to deduct TDS on dividend paid. The dividend income was exempt in the hands of the shareholder.