Making your money work round-the-clock

BSE's, NSE's overnight liquid fund facility can help stock investors maximise returns

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

It works just like any other mutual fund investment but is smarter and convenient. The investor’s broker will need to use BSE's 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, as these mutual fund units are not dematerialised.

The difference is that investors can place a buy and a sell order 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. For example, an investor puts in Rs 500,000 in a liquid fund delivering 8 per cent annualised interest. He can earn around Rs 110 using this platform.

Another advantage is that there will be no additional cost like securities transaction tax, service tax, stamp duty, or brokerage on these transactions.

After BSE took the initiative and records a daily transaction of around Rs 400-500 crore (Rs 4-5 billion), National Stock Exchange (left) too has followed suit. The latter is also in the process of introducing similar overnight liquid fund product.

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

Prasanth Prabhakaran, president (retail broking) at India Infoline says explains that stock exchanges introducing this option makes 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.

“The annualised returns of liquid funds are always better than the interest banks give for savings account,” says Prabhakaran. According to Value Research, the average returns of liquid funds are 8.52 per cent. The best one has returned 9.45 per cent where as the worst gave 6.4 per cent.

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 intra-day. But settlement is T+2 and there the costs associated with suying/selling stocks 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.