Forum Views - May 2024
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FORUM VIEWS - MAY 2024
ndia's financial landscape has been evolving at an
unprecedented pace in recent years. Among the notable
Idevelopments is the growth of Exchange-Traded Funds
(ETFs), a versatile financial instrument gaining traction among
investors. Within the realm of ETFs, the go-to option for parking
funds for a very short period has been the liquid ETF. Over the
years, liquid ETF has emerged as an attractive option, given
their minimal risk and optimal returns considering the tenure.
A liquid ETF, or Exchange Traded Fund, as the name suggests,
is a mutual fund whose units are traded on the stock exchange.
They invest in low risk overnight securities like Collateralized
Borrowing and Lending Obligations (CBLO), Repo and Reverse
Repo securities. The aim of a liquid ETF is usually to provide an
income commensurate with low risk, but at the same time,
providing a high level of liquidity.
When a stock market investor liquidates or sells off his
investment, he faces two issues before he reinvests his money
into a new stock. If you place your sell order on day 1. The stock
gets debited from your Demat account on day 2, and you
receive your sell proceeds in your margin account on day 3.You
can now keep the money in your margin account until you find a
new investment or initiate a payout to your bank account.
Now, as a stock market investor, your first dilemma will be that
this money will stay idle in your margin account and not earn
any interest and therefore not give you any returns. And the
second is that you will also have to spend a considerable
amount of time and energy in transferring money between your
trading account and your bank account.
Liquid ETF addresses these concerns, so when you place your
sell order on Day 1, you can simultaneously buy liquid ETF units
on the same day. On Day 2, your stocks are debited from your
Demat account and on Day 3 the liquid ETFs will be credited to
your Demat account and you will start earning returns in the
1. What are liquid ETFs? How does it help an investor
using this instrument?
form of daily income. So no money will sit idle. This basically
allows investors in the liquid ETF to start receiving returns on
their investments from the date of settlement of their trade.
Saket Kumar
Co-Founder
ETF Junction
DECODING LIQUID ETF
India's financial landscape has been
evolving at an unprecedented pace in
recent years. Among the notable
developments is the growth of
Exchange-Traded Funds (ETFs), a
versatile financial instrument gaining
traction among investors. Within the
realm of ETFs, the go-to option for
parking funds for a very short period
has been the liquid ETF.
2. What are the advantage the product, Liquid ETF offers
for any Investor?
Liquid ETF provides many advantages for an Investor, they are
• Help earn more returns: Your money is always earning you
interest, rather than sitting idle in the margin account or
earning negligible to no returns in a savings account. Also,
as soon as the settlement of the trade is cleared, liquid ETFs
start giving returns thus avoiding days of lost returns.
• Highly liquid: It is highly liquid, so you’ll be able to invest
when you find an attractive investment opportunity. You
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