Which is the best debt fund to park money for collateral?

I want to park my money in a good debt product for the purpose of pledging them for my derivatives trading. I want to beat inflation or atleast fd returns.

Better to beat inflation with your trading.

Rates depend on market and right now we have negative real rates for short term safe funds. To get that few percent extra you will have to take duration or credit risk. To me it does not seem to be worth it, so i prefer overnight funds. Gilt fund with fixed maturity date may also be a safe enough option if you can hold it for that long and are ready to accept potential M2M loss due to rising rates in the mean time.

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Yeah i have been researching on this for quite some time and BharatBond seems to be a better option, it only invests in AAA rated bonds from public sector companies and yield is around 6-7% for the 10year bond and i intend to not withdraw this money as it will be my capital for my trading business so i can hold it for 10 years.

What is the duration of the bonds in the fund? If the duration is long, the value of the bonds in the fund decreases due to hike in interest rates, so wouldn’t that decrease your collateral too?

Yes so you had to take duration risk for ~1.5% extra returns. If tomorrow rate increases to 9% and inflation at 9% you will still only get 7% and so you will have M2M losses so that your yield can go upto 9%. Even gilt 5y probably gives somewhere around 7%.

My point is that if your trading is not able to make such returns meaningless then maybe that is the problem. Still having a mix of things may not be a bad idea esp when it seems that rates have stabilized and inflation issue is history (But rates are hard to predict …)

ICICI Long term (All Seasons Bond Fund now i think ) from what i remember had a good track record for actively managing rates. But could be luck …

They are 10 year fixed bonds so i will get close to indicative yield if i hold on to it for 10 years there will be slight m2m fluctuations temporarily in between, it can reduce collateral to some extent i guess bt i also keep some money in liquid bees and direct cash. A little bit short term risk maybe there but the money is eventually safe as the bonds are from a public sector company so no default risk and yield is also good 6-7% inflation beating. So i am willing to take a small risk bt won’t add more until the macro environment is settled somewhat.

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liquidbees is pretty terrible for this. Expense ratio is too high along with other issues. So i prefer overnight funds. They have collateral against loans so safer than liquid funds.
Mix of gilt/Bharat bond type things if held for long term is ok too and as long as ST rates don’t cross your buying yield you will do better but will have to live with M2M changes.

Can you suggest some good overnight funds

Just look at expense and AUM + if you prefer stick to larger funds. They don’t have any extra edge in terms of returns. So the usual HDFC ICICI SBI will do. IDFC, Nippon have lower expense i think, look at list of overnight funds in Value research type site. Also check Zerodha margin excel and make sure Direct growth version is pledgable. Above 5 are.

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Liquid funds and T-bills should do the job. The interest rate being offered is equal to FD and can be a bit more.

But how to buy t bills and then pledge them ?

I dont think Tbills can be pledged, GOI bonds can be. Before you buy raise a support ticket with zerodha to confirm if its pledgeable or not