Investment is something that gives you outstanding returns if done properly. If you have excessive funds lying in your bank account, save them wisely. You might have heard the above statement from every stock analyst who manages your wealth profile. This is because money is always measured in terms of time.
How to Make the Best Use of Your Excess Funds?
The time value of money states that the amount of money you have in present is worth more than that the same amount of money you will have in the future. Instead of letting your money sit idle, it would be much better if you park your surplus fund with liquid ETFs.
Liquid ETFs or Liquid Exchange Traded Funds are the mutual funds whose units are traded on the stock exchange. Unlike normal ETFs, the investment in liquid ETFs generally happens in overnight securities such as Repo or Reverse Repo securities, landing obligations and collateralized borrowings.
The primary motive of liquid ETF is to provide an income filled with low risk, at the same time gives a high liquidity level.
Investors who park their funds in liquid ETFs can earn significant returns on idle funds while at the same time remaining liquid to benefit from lucrative investment opportunities.
Liquid ETFs are only suited for large retail investors, portfolio management service (PMS) providers. Futures and Options (F&O) brokers and institutions invest directly in equities, HNI (High Net-worth Individuals).
These are several liquid ETF funds that are readily available to trade. These liquid funds can be traded immediately.
Equity market investors and traders have a habit of making continuous profits from transactions. However, sometimes they even face a loss but these are part of daily work.
The investors who have a tremendous amount of money, always find a better alternative so that they can increase their profit to a greater extent. One such alternative is liquid ETFs. Investing in ETFs enables investors to earn extra profit from excessive funds.
NSE and BSE are the funds that are available for trading where buyers and sellers quickly perform the transactions during the stock market hours on any stock trading days.
ETFs are gaining a lot of popularity these days as many investors consider liquid ETFs as the best instrument that can do wonders with their money.
However, if you are deprived of several benefits of investing in liquid ETFs or exchange-traded funds, this blog will help you out.
ETFs are Preferred Because of their High Liquidity
ETFs are not for long term investment. They are for short term investments and provide high liquidity, these are always preferred by high profile investors. Like other stocks, these funds are also listed in stock exchanges which are traded during the day. These funds are inter-linked with intraday trading and therefore the prices of the ETF heavily depend on the intraday trades.
For instance, if the intraday rates of the underlying assets change, the ETF prices also change. ETF investors are the experienced ones, and therefore they know what they have paid and what they will receive at the selling.
With liquid ETFs, investors move money from one place to another, construct strategies around their investment and manage intraday portfolios. Investing in ETFs allows investors to successfully invest in a diversified portfolio such as stocks, bonds, commodities, derivatives.
Smooth Fund Management
ETFs are passively managed funds that are specially designed to offer low-risk returns and high liquidity. Investors invest in an ETF when they sell equities from their portfolio. Many stockbrokers enable investors to reinvest 100 per cent of the proceeds into an ETF that too on the same day.
The stock market follows a settlement cycle of T+2 days, i.e ETF units will get credited to investors’ accounts on the settlement day.
ETFs offer many benefits as in this type of scheme, individual investors hold their investment until they find a better alternative to move their funds. Another advantage of ETFs is that investors can forward the funds as a pledge against cash margins if investing in derivative segments.
Many brokerage houses accept ETFs as a cash margin if they want to trade in the derivatives segment.
Portfolio Diversification and Risk Management
Liquid exchange-traded funds offer investors better portfolio management by allowing them to invest in various sectors, industries, and country categories. They provide investors easy exposure to desired stock market segments.
ETFs are now available in the major asset classes, thus making them a good investment option. Also, investors can select to trade ETFs during stock market volatility or continue to invest based on their financial plans to earn profits.
The cost of investing in ETFs is quite less than mutual funds as the lower the costs, the higher the returns. Operational costs are an integral part of the structured investment as these costs include portfolio management fees, marketing costs, administrative expenses, distribution costs and more.
Here, lowering the costs means non-involvement of fund managers which means lower expenses of the funds. ETFs have lower expenses in transfers, monthly statements. Unlike open-ended funds, brokerages do require to send regular updates to the investors.
Mutual funds have more taxes than ETFs. This is because ETFs have a lower capital gain. The rate of capital gain tax applied to ETFs is also less as compared to mutual fund investments.
Liquid ETFs have only one dividend option. The daily earned dividends get reinvested into ETFs. Some ETF funds will credit bonus to its investors account weekly or monthly. Since the stock trading returns are low, brokerages waive off brokerage fees and depository participant changes on these funds.
Mutual funds and ETFs are similar investment types. However, the difference lies in the services they provide. ETFs provide higher liquidity than mutual funds and are also convenient to tap when cash flow is needed.