I usually trade f&o (mostly writing) and have capital of almost 10 Lakh. Now I want to park this fund and then pledge for collateral and trade using that fund. So what are the best instruments where I can park money? Instruments needs to be debt oriented and I don’t need this money for atleast a year so liquidity is not a problem although I can let go some bps for liquidity
Option 1 : Bharat Bonds
Liquidity is good, Yield is better but can be pledged as non-cash component. being Non-cash, you can’t utilize full pledged value for overnight positions. Intraday you can use full for option selling.
Expense ratio is also vey low, if you are purchasing from secondary market, you can pledge almost immediately. If you are purcahsing directly, say from edelweiss, it may take a week for getting to demat and pledge bla bla bla…
Option 2 : G-Sec or SGBs
Liquidity is very very low, Yield depends on the script. (6.5 to 7% easily), can be pledged as cash equivqlent component so overnight/intraday can be used for full value.
Option 3 : Mutual funds/ETFs/Liquidfunds etc etc
Liquidity is very very good. yeild varies case to case.
Hope it has helped a bit.
I have parked 6L in Gsecs. as i wanted to use for over night positions also.
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Any Gsec to recommend. I also thought about Gsecs, but confused which one to invest it as there are hell lot of Gsecs and I have no idea which one is pladgeable. In which Gsecs you have invested? What about taxation in GSEC?
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Refer Approved list of Securities at Zerodha. - Google Sheets
Under Cash component sheet, All pledge able G-Secs are listed.
There are G-Sec available which are going to Expiry in the year 2050+, Depends up on for how long you can wait… you can choose…
Every Tuesday RBI calls for auction of already issued G-sec. You can apply in COIN or you can directly buy from secondary market like Kite, Indiabonds, bonds india etc etc…
I have invested in 738GS2027-GS and purchased in kite at premium of 103.45. Effectively i am getting yield of almost 7%. i don’t wanted go for more than 5 years. so i choose that.
I purcahsed in kite as i dont wated to wait for 1 week for pledge.
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Almost 75% hikes are already done(as per estimates market cycles) can invest in medium,long term ,gilt mutual funds
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But have to pay tax on interest received in Gsecs, right? As I am already in highest tax bracket, that will eat a lot in interest alone. Anything more efficient tax wise so that I can have good return post tax
If you’re looking for a purely debt fund, then a medium-term gilt fund makes the most sense. Maybe, buy the 2027 or 2028 gilt index fund and hold it until April 2026. You’ll be taxed at 20% LTCG with 4 years of indexation benefit, so effectively you’ll be paying very little to no tax, depending on the returns and inflation index.
If you’re willing to take more risk, then a 10 year constant duration fund can also be thought of. Most gilt funds are considered cash equivalents, so you’ll not have to worry about 50-50 cash and collateral requirements for your overnight positions.
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If your tenure is 1 year - all debt instruments are taxable.
To get indexation benefit you need to wait for 3 years for Debt. mutual funds.
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Along with gilt funds above which have duration risk, if you don’t want to take that risk then overnight(safest) / liquid / money market funds can also be used. All of them will give you indexation after 3 years holding.
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But these funds have low yield, isn’t it? Also I have no idea about money market fund
Please suggest some
The yield curve is very flat right now, so even the money market funds are yielding around 7%, give or take.
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Overnight yield is above 6% now so its quite close to long term gilts which for some reason are not moving up. Spread is not that much so unless you think rates will fall, i would prefer to not take the duration risk. It depends on what you need, trading returns are much more and taking risk for small yield difference does not seem worth it to me.
I added money market because someone else uses them here ( jason maybe). They seem similar to liquid, from what i remember ( could be wrong) they invest and hold till maturity and so their duration keeps on reducing.
Both liquid and money market will have some small credit risk too which can show up if say a AAA bond goes to default immediately ( ILFS … ) but thats very rare. Right now, i just use overnight for almost all of my invested trading capital.
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Similarly like overnight fund there is ICICILIQ- Liquid ETF to park idle funds
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Agreed! ICICI Liquid ETF is the best overnight ETF out there.
Low expense ratio as compared to Liquidbees and you get interest every month in your bank account.
Yeah. I use money market funds.
yeah me too.
Money market funds work on a different logic and if used correctly is way better than debt/equity.
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Is there any GSEC MF that offers indexation benefits and a linear growth graph?
I think for linear growth, you’ll have to stick with money market instruments. Most of them are very safe, with the overnight funds the safest.
If you’re okay with a little bit of volatility, then you could also look at Gilt funds with 3–5-year maturities.
All debt funds give you indexation benefit if you hold for 3 years. If you invest now and hold until April 2026, then you’ll get 4 years of indexation benefit.
Money market instruments can lose money due to credit risk. Ex: IIFL collapse and Franklin Templeton freeze of debt funds.
Correct me if I am wrong.
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That’s correct. Although rare, but it can happen.
That risk can be avoided if you go for overnight funds or funds which only invest in T-bills.
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