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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