DSP BlackRock Liquid ETF debuts todayDSP BlackRock Mutual Fund has listed its liquid exchange-traded fund called DSP BlackRock Liquid ETF on the National Stock Exchange today. This will enable stock market traders and investors to earn returns on money that is lying idle in brokerage accounts.

What is a liquid ETF?

A liquid ETF, like a liquid fund, invests in debt and money market securities with a maturity of up to 91 days. It can be held for extremely short periods of time.

An ETF trades on the stock exchange allowing traders to buy and sell it anytime during the trading day. This will provide more flexibility to stock market traders and investors than liquid mutual funds, which do not trade on a stock exchange. Investors can buy units from the fund house as per the NAV prevailing on a particular day. They take roughly one day to buy and sell.

Who will the ETF help?

A lot of traders and investors leave money in brokerage accounts while waiting for the opportunity to buy a stock. This can cause them to lose out on a substantial amount of interest over time. Brokerage accounts do not pay an interest to investors. The liquid ETF will provide returns equivalent to prevailing short-term interest rates to stock market traders and investors.

How it will work

  • Normally, when you sell stocks, the proceeds are credited to your account two days after the day on which you have sold them (T+2 settlement).
  • However if you place an equivalent buy order for DSP Blackrock Liquid ETF on the same day, you will get units of the ETF in your account instead of money on the settlement day (T+2).
  • You will start earning returns on the liquid ETF units, from settlement day onwards (when they will be credited to your account).
  • You can do the same transaction in reverse when you buy stocks
  • The fund will endeavour to maintain a constant NAV of Rs 1000. Returns to the ETF accrue in the form of daily dividends which will be reinvested in the Liquid ETF.
  • No Securities Transaction Tax (STT) will be payable on buying and selling the ETF units.

Any other such ETFs?

Yes. Reliance ETF LiquidBees is a liquid ETF. It has delivered five, three and one year annualized returns of 6.24%, 5.65% and 5.02% present respectively, as on 20th March 2018. It has assets under management of Rs 1961 crore.

Exit Load and Tax

Liquid Funds and ETFs do not typically have any exit loads because they are meant for holding over very short periods of time such as a few days or few weeks. The gains in them will either be taxed as short-term capital gains or income from business and profession depending on how frequently the investor trades.

Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.