Making your money work round-the-clock

BSE and NSE's overnight liquid fund facility can help investors get returns constantly

For those who keep idle money in trading account while scouting for stocks, the BSE and National Stock Exchange (NSE) have introduced a facility that will let them park money in liquid funds for a duration as short as one day and earn an interest on it.

It works like any other mutual fund investment but is smarter and convenient. The investor will need to use exchanges’ web-based mutual fund platform, select from the available liquid funds and place a request to buy.

Accordingly, units of the scheme will be allocated. On redemption, the money is transferred back to the trading account of the person a day after request (T+1), as these mutual fund units are not dematerialised. BSE and NSE say the money is credited to customers’ accounts before noon.

The difference of using the exchange platform is that investors can place a buy and a sell order simultaneously, on the same day, just like intraday trading on stock exchanges. To get previous day’s net asset value (NAV), the person will need to put the request to buy before 1 pm. Another advantage is no additional cost like securities transaction tax, service tax, stamp duty, or brokerage on these transactions. So, if an investor puts in Rs 5 lakh in a liquid fund delivering eight per cent annualised interest, he earns around Rs 110 in one day, explains Rakesh Goyal, senior vice-president, Bonanza Portfolio.

“The annualised returns of liquid funds are always better than the interest banks give for savings account,” says Prasanth Prabhakaran, president (retail broking) at India Infoline. According to Value Research, the average returns of liquid funds are 8.52 per cent. The best one has returned 9.45 per cent, whereas the worst gave 6.4 per cent.

The overnight investment framework provides investors flexibility to choose the amount of redemption and also the date, says BSE spokesperson. “An investor can choose to redeem any time within 30 days. In case the person wants to invest for more than a month, they can place only buy order. In NSE’s platform, at present, the investment duration is one day but will ‘soon be enhanced for investments for more than one day,” said the spokesperson.

In most cases, investor will need to ask the broker to carry the transaction. However, a few have integrated the exchanges’ mutual fund platform into the trading account allowing clients to do it themselves.

Rahul Rege, business head – retail, Emkay Global Financial Services, said the money made might look small but it’s for savvy investors who like to make their money work round-the-clock.

Prabhakaran of IIFL explains that stock exchanges introducing this option increases convenience. For example, a person sells shares on a Friday and invests the amount in the overnight liquid fund. If on Monday, the person wants to buy some shares, the broker will still let him trade against the money investor holds in liquid funds.

At present, the alternative to this is Liquid BeES, Goldman Sachs Liquid Exchange Traded Scheme. A person can transact on the exchange just as he or she would buy and sell a stock. This means transactions can be intraday. But settlement is T+2 and the costs associated with buying/selling securities would apply.

Experts said while making use of this facility, investors should keep the taxation in mind. As these are debt fund, the profit made will be short term capital gains. These are clubbed with the income and taxed as per the slab rate.