Understanding Zerodha MF’s Promotion of Liquid ETFs for Traders

In the dynamic world of trading, where market volatility can be as unpredictable as the weather, traders are constantly on the lookout for stable investment options that offer liquidity without compromising on returns. Zerodha Mutual Fund (MF) has recently launched a product that promises to be a game-changer for traders seeking such an investment vehicle: the Zerodha MF Nifty 1D Rate Liquid Exchange-Traded Fund (ETF).

Introduction to Zerodha’s Liquid ETF

The Zerodha Nifty 1D Rate Liquid ETF is an open-ended exchange-traded fund replicating the Nifty 1D Rate Index. This innovative financial instrument was introduced with the objective of providing a short-term savings solution for investors, with an emphasis on securities covered by the Nifty 1D Rate Index. The fund was launched on January 24, 2024, and has already crossed Rs 1,000 crore in assets under management (AUM).

What Makes Zerodha’s Liquid ETF Stand Out?

One of the standout features of this ETF is its Growth NAV, which is a first in India for liquid ETFs. This feature simplifies the tracking of the ETF’s performance for investors. Moreover, the returns are taxed only upon the sale of the ETF, unlike daily dividends, which are subject to continuous taxation. This tax efficiency is a significant advantage for traders who are mindful of the impact of taxes on their investment returns.

Accessibility and Affordability

Zerodha MF has made this ETF accessible to a wide range of investors by setting a low entry point. The minimum investment starts at ₹500 per plan/option, with subsequent investments in multiples of Re 1. There is no upper limit for investment, making it an attractive option for both small and large traders.

Investment Objective and Asset Allocation

The primary investment objective of the Zerodha Nifty 1D Rate Liquid ETF is to invest in Tri-Party repo on Government securities or treasury bills (TREPS), aiming to provide returns that correspond to the Nifty 1D Rate Index before expenses. The asset allocation is predominantly towards the Tri-party repo on Government Securities or T-bills, Reverse repo & Cash and Cash equivalents, with a minimum of 95% and a maximum of 100% of total assets allocated in these low-risk instruments.

Comparison with Other Mutual Funds

Zerodha’s Liquid ETF enters a market where similar products have been launched by Mirae Asset Mutual Fund and HDFC Mutual Fund. However, Zerodha’s offering stands out due to its Growth NAV feature and tax efficiency.

Conclusion

Zerodha’s Nifty 1D Rate Liquid ETF represents a significant innovation in the realm of liquid ETFs. Its unique features, such as the Growth NAV and tax efficiency, make it an ideal investment vehicle for traders looking for stability, liquidity, and favorable tax treatment. With its low entry point and high accessibility, it is poised to become a preferred choice for traders and investors alike.