Discover how savvy investors are optimizing idle cash with liquid ETFs

Introduction: The Need for Smarter Cash Management in Equity Trading

In the dynamic world of equity trading, every minute is an opportunity—and every rupee, a potential profit. But timing your investments perfectly is often thwarted by one crucial problem: liquidity management. Traders and active investors often face the dilemma of what to do with idle cash in their trading accounts. Transferring it back to their bank accounts is time-consuming, offers meager interest, and disrupts trading continuity.

This is where a new financial instrument is stepping into the spotlight—liquid ETFs.

Over the last couple of years, liquid ETFs have gained popularity as a smart, agile, and profitable way to manage cash for equity traders. With the seamless integration of liquidity, safety, and flexibility, liquid ETFs offer a convenient alternative to traditional liquid mutual funds and savings accounts.

In this extensive article, we will explore everything you need to know about liquid ETFs, how they function, their advantages and limitations, and why they are quickly becoming the go-to tool for equity traders in India.

What Are Liquid ETFs?

➤ Definition

Liquid Exchange-Traded Funds (ETFs) are open-ended mutual fund schemes that are traded on the stock exchange and primarily invest in overnight money market instruments like tri-party repos (TREPs). These ETFs aim to provide returns in line with short-term interest rates while maintaining high liquidity.

Unlike traditional liquid mutual funds, which may invest in instruments with maturities up to 91 days, liquid ETFs stick to extremely short-term investments. This allows them to offer almost instant access, which is critical for active traders.

➤ Key Features of Liquid ETFs

• Traded like stocks on major Indian exchanges (NSE, BSE)
• Zero exit load
• Highly liquid with T+1 settlement
• Returns in line with overnight repo rates
• Low credit risk due to exposure to government-backed instruments
• Eligible for margin pledge in F&O trades

➤ Historical Background

The first liquid ETF in India was Liquid BeES, launched in 2003 by Benchmark Mutual Fund (now under Nippon India Mutual Fund). While innovative, early versions were structured as IDCW (Income Distribution cum Capital Withdrawal) plans. These had tax inefficiencies and complexities related to dividend accounting.

Fast-forward to 2023, Zerodha Fund House introduced India’s first growth NAV liquid ETF—the Nifty 1D Rate Liquid ETF, setting a new benchmark in how traders manage liquidity.

The Rise of Liquid ETFs Among Equity Traders

Why are brokers and investors so excited about this product?

 The Traditional Cash Management Pain Point

Let’s say a trader sells shares worth ₹10 lakh. Ideally, this cash should immediately start earning returns. But in reality, it either:

• Stays idle in the trading account earning zero returns, or
• Gets transferred to the bank account, earning a meager 2.5–3% p.a.

Now imagine instead parking that ₹10 lakh in a liquid ETF immediately after the stock sale. It starts earning a 6% return without locking away liquidity. When a new buying opportunity arises, the trader sells the ETF units, and the funds are instantly usable via trading limits.

This loop of earning + liquidity is the magic of liquid ETFs.

 Why Brokers Love Liquid ETFs

Every month, brokers are required by SEBI to transfer unutilized funds in client accounts back to their linked bank accounts. This administrative burden increases operational complexity.

By encouraging clients to park excess funds in this ETFs instead, brokers:

• Avoid fund outflows
• Retain AUM (Assets Under Management) within their ecosystem
• Reduce the hassle of periodic settlements

Many leading brokers, including Zerodha, AngelOne, and Groww, now offer liquid ETFs commission-free to facilitate smoother adoption.

 How Liquid ETFs Work in Practice

Let’s understand the process with a simple 6-step illustration:

 Step-by-Step Flow

1. Sell equity shares on the exchange via your trading account.
2. Simultaneously place a buy order for equivalent units of a liquid ETF.
3. The liquid ETF units are credited to your demat account on T+1.
4. Hold the units until a new opportunity arises.
5. Sell the ETF units when ready to re-enter equity markets.
6. Funds are credited on T+1, but your buying limit is available immediately.

This creates a seamless transition between equity and cash without moving funds between the trading and banking ecosystem.

5 Powerful Benefits of Liquid ETFs for Traders

Let’s now explore the core advantages in detail:

✅ 1. Instant Liquidity with No Transfer Hassles

No more bouncing money between your trading account and bank account. This ETFs allow you to retain capital within your trading ecosystem while earning returns.

✅ 2. Earn Higher Returns on Idle Money

Bank savings yield ~3%. Liquid ETFs, on average, offer returns between 6–6.3%.

Here’s a quick snapshot:

ETF Name	1-Year Return	Expense Ratio
Zerodha Nifty 1D Rate Liquid ETF	6.21%	0.27%
Kotak Nifty 1D Rate Liquid ETF	6.33%	0.19%
Nippon Liquid BeES	5.75%	0.69%

Source: Value Research, 2025

✅ 3. Enable F&O Margin Utilization

Liquid ETF units can be pledged to earn trading margins in the F&O segment. They’re treated as cash equivalent, making them highly efficient for margin optimization.

✅ 4. Zero Exit Loads and Broker Commissions

Unlike liquid mutual funds (which impose exit loads for <7-day withdrawals), they are free from exit penalties. Also, many brokers waive off trading commissions to boost adoption.

✅ 5. Tax-Efficient Growth NAV Option

New-age ETFs like Zerodha’s growth NAV structure avoid frequent dividend payouts. Returns are reflected in NAV appreciation, and only capital gains tax applies upon sale. This avoids complex dividend accounting.

 Liquid ETFs vs Liquid Mutual Funds vs Savings Accounts

Feature	Liquid ETF	Liquid Mutual Fund	Savings Bank
Returns	~6–6.3%	~7.2%	~3%
Liquidity	Real-time trading	Same-day redemption (T+1)	Instant
Exit Load	None	Graded for <7 days	None
STT Applicable?	No	No	No
Expense Ratio	~0.30%	~0.15%	None
Tax Efficiency	High (growth NAV)	Moderate	Low

What to Watch Out for: Limitations of Liquid ETFs

No investment instrument is perfect. Here are some cautions to keep in mind:

 1. Not a Replacement for Liquid Mutual Funds

While liquid ETFs are great for short-term parking, they do not replace mutual funds for longer holding periods or strategic allocation.

 2. Slightly Lower Returns

This ETFs tend to yield 6.1–6.3%, while liquid mutual funds often deliver 7.2–7.3% annually.

 3. Higher Expense Ratios

Despite being passive instruments, this ETFs may charge 30–31 basis points, compared to 15 bps for mutual funds.

 4. Liquidity Risk in Low-Volume ETFs

Always choose ETFs with high daily volumes. Otherwise, liquidity could be misleading, and you may struggle to enter or exit at favorable prices.

 Who Should Use Liquid ETFs?

• Active Equity Traders: To optimize idle capital between trades
• F&O Traders: To pledge for margin
• DIY Investors: Looking for better-than-bank returns with high liquidity
• High-Frequency Traders: Who need quick access and seamless fund movement

Expert Opinions

“This seamless experience is possible as liquid ETFs trade in the same segment as equities.”
— Vishal Jain, CEO, Zerodha Fund House

“Use it for the convenience, not for returns. It’s not comparable to liquid funds.”
— Juzer Gabajiwala, Director, Ventura Securities

 

 FAQs – Frequently Asked Questions

1. Are liquid ETFs safe?

Yes. They invest in short-term repos and overnight instruments, carrying negligible credit and interest rate risk.

2. How can I invest in a liquid ETF?

Through any stockbroker or trading platform—just like buying or selling shares.

3. What are the tax implications?

Only capital gains tax applies on growth NAV-based ETFs. No TDS or dividend tax.

4. Can I set up a SIP in liquid ETFs?

Not directly. But you can automate investing in ETFs via brokers that support recurring buy orders.

5. Are they suitable for emergency funds?

Not ideal. This ETFs settle on T+1. For instant access, savings accounts or sweep-in FDs may be better.

 

Final Thoughts: A Strategic Upgrade for Market-Savvy Investors

In the age of digital trading and real-time execution, traditional ways of parking idle funds no longer cut it. Liquid ETFs offer a compelling alternative that combines:

• Speed
• Flexibility
• Better-than-bank returns
• Simplicity
• Tax efficiency

While not a magic bullet, these are a perfect tactical tool for equity traders who understand timing and liquidity’s role in success.

If you’re a modern investor looking to optimize your cash flow without compromising on returns or flexibility, it might be time to make room for this investment style in your strategy.

Introduction: A New Age of Diversified Investing

The world of investing is rapidly evolving, with investors increasingly demanding strategies that offer not only returns but also protection against volatility. One such innovation in the mutual fund landscape is the Multi Asset Fund, and Baroda BNP Paribas’ latest offering—the Baroda BNP Paribas Multi Asset Active Fund of Fund FoF—is a prime example of how intelligent diversification can be harnessed to deliver long-term capital growth while managing risks effectively.

Slated to open for subscription from May 15th, 2025 to May 26th, 2025, this Multi Asset Active FoF New Fund Offer (NFO) is designed to capture the strengths of three key asset classes: debt, equity, and gold.

This article offers a deep dive into this promising scheme and explains why it deserves serious consideration in your investment portfolio.

1. The Foundation of the Scheme: What is a Multi Asset Fund?

A Multi Asset Fund is a type of mutual fund that diversifies investments across different asset classes—primarily equity, debt, and commodities like gold. The core idea is simple yet powerful: reduce risk through diversification and enhance potential returns by leveraging the unique strengths of each asset class.

The Baroda BNP Paribas Multi Asset Active FoF takes this concept to the next level by investing in multiple underlying schemes of Baroda BNP Paribas Mutual Fund—each with distinct objectives and investment strategies.

Asset Allocation Strategy

– Debt Funds: Minimum 55% and up to 65% allocation
– Equity Funds: Minimum 15% and up to 25% allocation
– Gold ETFs: Minimum 15% and up to 25% allocation
– Cash & Money Market Instruments: 0–5% as liquidity buffer

2. The Power Trio: Debt, Equity, and Gold

A. Debt Funds – The Stability Anchor

At the heart of the fixed income allocation is the Baroda BNP Paribas Short Duration Fund. This fund:
– Primarily invests in AAA-rated instruments and sovereign securities
– Dynamically manages duration between 1 to 3 years
– Offers stability in income generation
– Controls volatility through issuer-level and asset-class diversification

B. Equity Funds – The Growth Engine

For equity exposure, the scheme focuses on the Baroda BNP Paribas Large Cap Fund. This fund:
– Invests in India’s top 100 companies by market cap
– Follows a Growth at Reasonable Price (GARP) philosophy
– Actively rotates sectors based on macroeconomic trends
– Is positioned to capture long-term capital appreciation

C. Gold ETFs – The Risk Hedge

The scheme’s gold allocation is through the Baroda BNP Paribas Gold ETF, which:
– Invests 95–100% in physical gold and gold-related instruments
– Mirrors domestic gold prices
– Provides a natural hedge against inflation, currency depreciation, and geopolitical risks

3. Why This Multi Asset Fund Stands Out

A. Professional Management and Tactical Allocation

One of the strongest USPs of this scheme is active management. The fund managers—Prashant Pimple and Pratish Krishnan, with over two decades of experience each—will dynamically shift allocations based on:
– Interest rate movements
– Macroeconomic trends
– Geopolitical scenarios
– Market valuations

B. Tax Efficiency

Unlike direct investment in equity and debt schemes, this FoF structure offers superior tax efficiency:
– Long Term Capital Gains (LTCG) tax at 12.5% after 24 months
– No tax impact on rebalancing within the fund
– No need to manually shift investments between asset classes

C. Ease of Handling

Instead of managing multiple investments across gold ETFs, debt, and equity funds, investors get a single NAV representing a well-diversified portfolio.

How This Multi Asset Fund Is Different from Multi Asset Fund of Fund (FoF)

While the terms Multi Asset Fund and Multi Asset Fund of Fund (FoF) may sound similar and even serve a common purpose of diversification, they are structurally and operationally distinct. Understanding this difference is critical for investors aiming to make informed decisions.

1. Structure and Investment Mechanism

– Multi Asset Fund: Directly invests in equity, debt, and gold ETFs.
– Multi Asset FoF: Invests in other mutual fund schemes, primarily those managed by Baroda BNP Paribas.

2. Risk and Return Profile

– Multi Asset Fund: Carries a “Very High” risk rating.
– Multi Asset FoF: Comes with a “Moderately High” risk profile, due to diversification and indirect exposure.

3. Tax Implications

– Multi Asset Fund: May enjoy equity taxation benefits.
– Multi Asset FoF: Taxed as debt fund, but LTCG benefits available after 24 months.

4. Transparency and Control

– Multi Asset Fund: Provides direct visibility into holdings.
– Multi Asset FoF: Shows exposure to underlying funds, not direct securities.

5. Rebalancing Strategy

– Multi Asset Fund: Direct rebalancing by fund manager.
– Multi Asset FoF: Rebalancing happens at the fund level by adjusting allocations to underlying schemes.

6. Cost Structure

– Multi Asset Fund: Single-layered cost.
– Multi Asset FoF: May incur double-layered expenses (at fund and underlying fund level).

In today’s complex financial environment, a single-dimensional approach to investing is no longer sufficient to safeguard wealth or achieve consistent growth. Traditional strategies like pure equity or fixed deposits are either too volatile or too conservative for modern-day goals. That’s where Multi Asset Funds come into the picture. These funds are a step forward in portfolio evolution, offering not only diversification but also a cushion during market downturns. The ability to ride the momentum of equity markets, the stability of debt, and the inflation-hedging properties of gold makes a Multi Asset Fund an extremely relevant and intelligent choice for today’s investors.

Each asset class in the Multi Asset Fund plays a specific and vital role. Equity offers the potential for high returns and long-term capital appreciation. Debt brings stability and regular income with comparatively lower risk. Gold acts as a safeguard against inflation, currency devaluation, and economic downturns. The Baroda BNP Paribas Multi Asset Active FoF tactically balances these components to ensure that the portfolio can perform in varied market conditions.

The allocation is not static; the fund manager has the flexibility to adjust exposure based on macroeconomic indicators, interest rate expectations, geopolitical events, and valuation levels. This dynamic allocation makes it more resilient and responsive than static portfolios, which may not adapt swiftly to changing market scenarios.

Baroda BNP Paribas Multi Asset Active FoF does not randomly choose its underlying funds. Instead, the selection is a result of a rigorous due diligence process. The underlying debt fund, equity fund, and gold ETF are selected based on past performance, consistency, risk-adjusted returns, duration management, and portfolio quality. This meticulous selection ensures that the fund remains in line with its stated objective of delivering optimal returns through active asset allocation.

Taxation plays a vital role in the real returns that investors ultimately take home. Many investors make the mistake of ignoring the post-tax implications of their investment strategies. The Multi Asset Fund of Fund structure is efficient in that it avoids capital gains tax when switching between asset classes within the fund. This means that while the fund manager is actively rebalancing the portfolio between debt, equity, and gold, investors do not incur any tax liabilities. This advantage allows compounding to work more effectively, enhancing long-term wealth creation.

Let’s consider an example. Suppose an investor holds direct investments in an equity mutual fund, a debt fund, and a gold ETF. Rebalancing between them to maintain a 60:20:20 allocation would require manual transactions, timing the market, incurring exit loads, and paying taxes on short-term or long-term capital gains. In contrast, the Multi Asset FoF automates this process, ensuring optimal rebalancing without any tax impact, all while being monitored by professional fund managers.

This automation is particularly beneficial for salaried professionals or retirees who may not have the time or expertise to manage multiple asset classes. It also reduces emotional biases—such as holding onto underperforming assets or fear-based selling during market downturns—which often harm returns in self-managed portfolios.

In conclusion, the Baroda BNP Paribas Multi Asset Active FoF represents the next generation of mutual fund investing. It delivers a seamless blend of growth, stability, and protection against market shocks. Unlike traditional hybrid funds, this Multi Asset Fund offers gold exposure, active rebalancing, and enhanced tax efficiency—all in one product. Whether you are a first-time investor or someone with a seasoned investment portfolio, adding this fund can enhance your risk-return profile and provide better consistency over market cycles.

Investing is not only about chasing returns but also about managing risks, minimizing costs, and aligning your portfolio with your life goals. This Multi Asset Active FoF helps you achieve all three. With a seasoned fund management team, robust asset allocation strategy, and a flexible structure, it’s designed for investors who want to benefit from equity’s upside, debt’s safety net, and gold’s security, all while minimizing friction and optimizing tax benefits.

FAQs: Baroda BNP Paribas Multi Asset Active Fund of Fund (FoF)

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1. What is the Baroda BNP Paribas Multi Asset Active (FoF)?
This is a multi asset mutual fund that invests in a mix of Baroda BNP Paribas’ own equity, debt, and gold-based mutual fund schemes. It aims to deliver long-term capital growth while reducing volatility through diversification.

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2. What makes Multi Asset Active FoF fund a “Fund of Fund”?
Unlike regular multi asset funds that invest directly in securities, this FoF invests in other mutual funds managed by Baroda BNP Paribas. These underlying funds handle specific asset classes like equity, debt, and gold.

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3. How is a Multi Asset Active FoF different from a Multi Asset Fund?
A Multi Asset Fund directly holds stocks, bonds, and gold ETFs, giving fund managers control over each investment. A Multi Asset Active FoF, like this one, delegates that control to underlying mutual funds. It offers more convenience and tax efficiency but may have layered expenses.

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4. What is the asset allocation strategy of this Multi Asset Active FoF?
The fund dynamically allocates:

• 55–65% to debt mutual funds
• 15–25% to equity mutual funds
• 15–25% to gold ETFs
• 0–5% to money market instruments for liquidity

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5. Who should consider investing in Multi Asset Active FoF fund?
This fund is ideal for:

• Investors seeking automatic diversification across asset classes
• First-time mutual fund investors who want an all-in-one solution
• Those with moderate risk appetite looking for a blend of growth and stability
• People who lack the time or expertise to rebalance portfolios manually

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6. What is the tax treatment for Multi Asset Active FoF?
It is taxed as a debt fund, but offers Long Term Capital Gains (LTCG) tax of 12.5% after 24 months. Rebalancing between asset classes within the fund has no tax impact on the investor.

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7. How does gold contribute to this Multi Asset Active FoF?
Gold acts as a risk hedge during periods of inflation, currency depreciation, or geopolitical stress. The fund invests in a gold ETF that closely mirrors domestic gold prices.

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8. What are the risks associated with Multi Asset Active FoF?
The fund is rated as “Moderately High” risk. While it is diversified, it still involves:

• Market risk (equity volatility)
• Interest rate risk (debt funds)
• Commodity risk (gold price fluctuations)

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9. What is the minimum investment amount in Multi Asset Active FoF?

• Lump sum: ₹5,000
• SIP: ₹500 (monthly), ₹1,500 (quarterly)

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10. Who are the fund managers of Multi Asset Active FoF?
The scheme is managed by Prashant Pimple and Pratish Krishnan, both seasoned professionals with over two decades of experience in fixed income and equity markets respectively.

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11. How often is Multi Asset Active FoF fund rebalanced?
The allocation between asset classes is actively managed and adjusted periodically based on market conditions, macroeconomic factors, and valuation metrics.

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12. Is Multi Asset Active FoF fund suitable for long-term wealth creation?
Yes, the fund is structured for long-term capital growth with managed volatility. It is especially suitable for goal-based investing over 3+ years.

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13. What benchmark does Multi Asset Active FoF fund follow?
The fund is benchmarked against a composite index:

• 65% Nifty Composite Debt Index
• 15% Nifty 500 TRI (Equity)
• 15% INR Price of Gold

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14. How does Multi Asset Active FoF perform during market downturns?
Historical simulations show that the Multi Asset strategy delivers positive 2-year rolling returns, and provides better downside protection than standalone equity or gold investments.

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15. Can I redeem units at any time?
Yes, since Multi Asset Active FoF is an open-ended scheme, you can redeem units anytime. However, an exit load of 1% is applicable if redeemed within 12 months (over 10% of investment).

Disclaimer

Mutual Fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. Past performance is not indicative of future returns. The value of investments may fluctuate based on market conditions, economic developments, and other factors. Investors are advised to assess their risk appetite and consult with a certified financial advisor before making any investment decisions. The information provided in this article is for educational and informational purposes only and does not constitute financial, tax, or legal advice.

SBI Income Plus Arbitrage Active Fund of Fund: A Smart Blend of Stability and Tax-Efficient Returns

In today’s uncertain financial markets, investors—especially the conservative ones—are constantly on the lookout for low-risk investment avenues that offer consistent returns while maintaining tax efficiency. If that sounds like you, then there’s a new offering in the mutual fund space that deserves your attention: the SBI Income Plus Arbitrage Active Fund of Fund.

Launched by SBI Mutual Fund, India’s largest asset management company, this newly introduced scheme aims to bridge the gap between low volatility and steady returns—making it a suitable choice for individual investors, corporate treasuries, and high-net-worth individuals (HNIs).

Let’s explore everything you need to know about this hybrid fund offering in detail—from its structure and portfolio strategy to its benefits, risks, and who it’s most suitable for.

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📌 Quick Snapshot of the NFO

• Fund Name: SBI Income Plus Arbitrage Active Fund of Fund (FoF)
• NFO Period: April 23, 2025 to April 30, 2025
• Allotment Date: May 2, 2025
• Fund Type: Open-ended Fund of Fund Scheme
• Minimum Investment: ₹5,000 and in multiples of ₹1 thereafter
• Additional Investment: ₹1,000 and in multiples of ₹1 thereafter
• SIP Options: Daily, Weekly, Monthly, Quarterly, Semi-Annual, Annual
• Fund Manager: Mr. Ardhendu Bhattachary

Understanding the Fund’s Objective

The core aim of the SBI Income Plus Arbitrage Active FoF is to generate stable, market-neutral, and tax-efficient returns. It does so by dynamically allocating assets between:

• Actively managed debt mutual funds (50–65%)
• Actively managed arbitrage mutual funds (35–50%)
• Cash and money market instruments (up to 5%)

This structure allows the fund to capitalize on interest income from debt markets, and price inefficiencies in equity markets through arbitrage, while keeping risk at a minimal level.

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🏗️ How Does a Fund of Fund (FoF) Work?

A Fund of Fund is a mutual fund that doesn’t invest directly in stocks or bonds, but instead allocates capital into a basket of other mutual funds. This indirect investing structure brings diversification, professional management, and flexibility to the table.

In this case, SBI’s fund will primarily invest in existing SBI mutual fund schemes, but also has the option to consider mutual funds from other AMCs, depending on their suitability.

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⚖️ Portfolio Allocation Strategy

Here’s a closer look at the allocation philosophy behind this hybrid structure:

1. Debt Mutual Funds (50–65%)

These are funds that primarily invest in fixed-income instruments such as government securities, corporate bonds, treasury bills, etc.
📈 Goal: To provide stability and predictable returns over time.
🔒 Risk Level: Low to moderate.

2. Arbitrage Mutual Funds (35–50%)

These funds exploit the price differences between equity spot and derivative markets. For instance, buying a stock in the cash market and simultaneously selling it in the futures market.
📈 Goal: To generate returns through low-risk trading strategies.
🔒 Risk Level: Very low since positions are hedged.

3. Cash or Money Market Instruments (Up to 5%)

Includes liquid assets like cash, reverse repos, triparty repos, and other short-term money market instruments.
📈 Goal: To maintain fund liquidity and meet redemption requirements.
🔒 Risk Level: Negligible.

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📊 Benchmarking the Fund’s Performance

The fund uses a composite benchmark to track its performance:

• 65% Nifty Composite Debt Index
• 35% Nifty 50 Arbitrage Index

This dual-index benchmark reflects the fund’s hybrid strategy and offers investors a way to measure its efficiency against the performance of its underlying assets.

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📈 Who Should Consider Investing in This Fund?

This fund is ideal for investors who want a middle-ground between traditional fixed deposits and equity funds. It suits:

• ✅ Conservative Investors: Looking for capital preservation and better-than-FD returns.
• ✅ HNIs: Seeking stable, post-tax income from a diversified pool of funds.
• ✅ Corporate Treasuries: Needing a parking solution for surplus cash with minimal market risk.
• ✅ Medium-Term Investors: With a 2–3 year time horizon and moderate return expectations.

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🎯 Key Benefits of the SBI Income Plus Arbitrage Active FoF

1. Tax Efficiency

Thanks to its arbitrage component, the fund enjoys equity-like tax treatment if the equity allocation crosses 65% (in certain strategies). This leads to lower capital gains tax compared to pure debt funds.

2. Risk-Adjusted Returns

By combining arbitrage and debt, the fund targets market-neutral growth—offering protection during volatility and down cycles.

3. Professional Management

Managed by experienced fund manager Ardhendu Bhattacharya, who handles several SBI schemes, including conservative hybrid and retirement plans.

4. Low Minimum Investment

Start investing with just ₹5,000, making it accessible to retail investors, salaried professionals, and first-time mutual fund investors.

5. Flexible SIP Options

You can choose from daily to annual SIPs, which gives flexibility in investing based on your cash flow patterns.

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🧮 How Does Arbitrage Work in Mutual Funds?

Here’s a quick example:

Suppose Reliance stock is trading at ₹2,500 in the cash market and ₹2,520 in the futures market. An arbitrage fund would:

• Buy Reliance in the cash market at ₹2,500
• Sell Reliance in the futures market at ₹2,520

The ₹20 difference is your risk-free profit (minus expenses and taxes), realized when both positions are squared off.

In volatile or sideways markets, arbitrage funds tend to perform relatively better due to increased mispricing opportunities.

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🛡️ Risks to Consider

Although low-risk, this fund is not risk-free. Investors must consider:

• Interest Rate Risk: Debt fund components may be affected by fluctuating interest rates.
• Arbitrage Spread Compression: When the difference between spot and future prices narrows, arbitrage returns may reduce.
• Market Liquidity Risk: If underlying funds face redemption pressure, it may affect overall liquidity.
• No Guaranteed Returns: As per SEBI norms, mutual funds can’t guarantee returns.

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🧾 Taxation Insights

Depending on its underlying asset allocation, the fund may qualify as:

• Debt-Oriented FoF: Taxed as per debt fund rules — LTCG after 3 years @ 20% with indexation.
• Equity-Oriented Fund (in some strategies): If equity exposure is maintained above 65%, LTCG up to ₹1 lakh is tax-free, and 10% thereafter.

Always consult a tax advisor before investing for personalized advice.

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📉 How Is This Fund Different from Other Hybrid Funds?

Feature	SBI Income Plus Arbitrage FoF	Conservative Hybrid Funds	Balanced Advantage Funds
Equity Exposure	Mostly through arbitrage	Up to 25%	Dynamic (0–100%)
Risk Level	Very Low	Low to Moderate	Moderate
Return Expectation	5–7%	6–9%	8–10%
Volatility	Low	Moderate	High
Tax Treatment	Tax-efficient (if equity-weighted)	Debt	Equity (if 65%+)

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🗣️ Expert Commentary

“In today’s market environment, stability and tax-efficiency matter. The SBI Income Plus Arbitrage Fund of Fund aims to allocate investments between debt-oriented and arbitrage mutual fund schemes, depending on market conditions, to provide a combination of stability from debt and market-neutral returns from arbitrage.”
— D P Singh, Deputy MD & Joint CEO, SBI Funds Management Ltd.

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✅ Final Thoughts

The SBI Income Plus Arbitrage Active Fund of Fund stands out as a timely and relevant product for investors looking for:

• Better alternatives to traditional savings or FDs
• A systematic, tax-efficient income stream
• A diversified portfolio with professional oversight

With a low entry point, flexible investment modes, and a strategy built for low volatility, this fund ticks many boxes for the cautious investor.

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📣 Act Fast!

The NFO closes on April 30, 2025, and allotment will be done on May 2, 2025.

If you’re someone who believes in smart investing without sleepless nights, this could be your next step in building a safe and sustainable portfolio.

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🔖 Don’t forget to share this article with friends or colleagues who are looking for smart, low-risk investment options!

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Introduction

The Association of Mutual Funds in India (AMFI) has recently launched three major initiatives aimed at increasing accessibility to mutual fund investments, enhancing financial literacy, and facilitating the retrieval of forgotten investments. These initiatives, namely Chhoti SIP, Tarun Yojana, and MITRA, are set to transform the landscape of mutual fund investing in India by making it more inclusive, investor-friendly, and transparent. With these programs, AMFI aligns itself with the Securities and Exchange Board of India (SEBI) to democratize mutual fund investments, ensuring that they reach a wider and more diverse population.

Venkat Chalasani, AMFI’s Chief Executive, emphasized the crucial role of mutual funds in shaping India’s financial future. He stated that these initiatives would encourage more individuals to start investing while providing essential tools to improve transparency, security, and ease of access to mutual fund investments. SEBI Chairperson Madhabi Puri Buch also praised these initiatives, reinforcing their importance in broadening and deepening India’s financial markets.

About AMFI

The Association of Mutual Funds in India (AMFI) is the regulatory organization for mutual funds in India. Established in 1995, AMFI is a non-profit industry body that aims to promote transparency, best practices, and investor awareness in the mutual fund sector. It works closely with the Securities and Exchange Board of India (SEBI) to ensure that Asset Management companies operate within regulatory guidelines, maintaining fair and ethical investment practices.

Objectives of AMFI:

• Ensure that mutual funds adhere to high ethical and professional standards.
• Promote investor awareness and education about mutual funds.
• Represent the industry’s interests to regulators and policymakers.
• Work towards improving the mutual fund ecosystem in India.

As the nodal agency for the industry, AMFI plays a pivotal role in making investment products more accessible and investor-friendly. Through various campaigns, such as ‘Mutual Funds Sahi Hai’, AMFI has significantly contributed to the rise of retail participation in mutual fund investments over the years.

1. Chhoti SIP: Making Mutual Fund Investments Affordable and Accessible

What is Chhoti SIP?

Chhoti SIP is a groundbreaking initiative that allows investors to start a Systematic Investment Plan (SIP) with just Rs 250. This program is designed specifically for new investors and underserved groups who may not have had access to MF investments due to high entry barriers.

Why is Chhoti SIP Important?

1. Encourages First-Time Investors: Many individuals hesitate to invest in mutual funds due to high minimum investment requirements. A Rs 250 SIP makes MFs investments more approachable for first-time investors.
2. Promotes Financial Inclusion: The initiative primarily targets low-income groups, rural investors, and those without prior investment experience, helping bridge the financial inclusion gap in India.
3. Encourages Regular Savings: By promoting disciplined investment habits, Chhoti SIP ensures that even small savers can systematically grow their wealth over time.

Impact of Chhoti SIP on the Indian Economy and Stock Market

• Higher Retail Participation: With more investors entering the mutual fund space, liquidity in equity and debt markets will improve.
• Stronger Domestic Investment Base: A broader investor base helps reduce dependency on foreign institutional investments.
• Long-Term Wealth Creation: Encouraging small investments fosters a culture of long-term wealth accumulation, benefiting the overall economy.

2. Tarun Yojana: Introducing Financial Education in Schools

What is Tarun Yojana?

Tarun Yojana aims to integrate financial literacy into school curricula, providing students with foundational knowledge about investments, mutual funds, and personal finance management.

Why is Tarun Yojana Important?

1. Early Financial Education: Teaching children about financial planning, investments, and risk management from a young age prepares them for a secure financial future.
2. Bridging the Knowledge Gap: Many adults lack basic financial literacy. Educating students at an early stage ensures that future generations make informed financial decisions.
3. Encouraging Long-Term Investing: Young investors who understand MFs and the stock market early on are more likely to invest for the long term, leading to stable economic growth.

Impact of Tarun Yojana on the Indian Economy and Stock Market

• Increased Investor Awareness: As financially literate individuals enter the workforce, they are more likely to invest in MFs and equities.
• Stronger Retail Investor Base: Educated investors contribute to a more resilient and well-informed market ecosystem.
• Reduced Financial Mismanagement: Early education can prevent poor financial decisions, reducing loan defaults and bad debts.

3. MITRA: Mutual Fund Investment Tracing and Retrieval Assistant

What is MITRA?

MITRA is an innovative digital platform that helps investors and their heirs identify and reclaim dormant or forgotten investments. It ensures that rightful owners can access and benefit from their investments.

Why is MITRA Important?

1. Recovering Lost Investments: Many investors forget about their mutual fund holdings over time. MITRA helps track these investments and ensures they are not lost.
2. Easier Wealth Transfer: Families often struggle to claim a deceased person’s mutual fund holdings due to lack of documentation. MITRA simplifies this process.
3. Transparency and Security: By streamlining the retrieval process, MITRA ensures that investments remain secure and accessible to rightful beneficiaries.

Impact of MITRA on the Indian Economy and Stock Market

• Boosts Investor Confidence: The assurance that investments will not be lost encourages more people to invest in mutual funds.
• Enhances Market Stability: Recovered investments can be reinvested, contributing to market liquidity and stability.
• Strengthens Financial Planning: Investors are more likely to maintain records and engage in systematic planning when they know retrieval processes exist.

Conclusion

AMFI’s three initiatives—Chhoti SIP, Tarun Yojana, and MITRA—mark a significant step towards making mutual fund investments more accessible, transparent, and investor-friendly. These programs not only encourage new and small investors to participate in financial markets but also ensure that financial literacy is imparted from a young age and that lost investments are recovered efficiently. By bridging the gap between financial awareness and investment accessibility, these initiatives have the potential to transform India’s financial landscape and empower millions of retail investors.

With growing retail participation, a well-informed investor base, and enhanced financial security, AMFI’s efforts align perfectly with India’s vision of becoming a financially inclusive and robust economy. Investors, both new and experienced, can look forward to a future where mutual fund investments are easy, secure, and rewarding.

The Groww Gold ETF Fund of Funds (FOF) – Direct (G) is a mutual fund scheme that invests exclusively in gold-backed Exchange-Traded Funds (ETFs). By offering easy access to gold, this fund allows investors to benefit from it’s price movements without the inconvenience and costs associated with holding physical gold. It serves as an excellent financial product for hedging, diversification, and tax planning within an investment portfolio. 

Key Details and Features 

This open-ended fund was launched as part of the NFO (New Fund Offer) on October 16, 2024, with a closing date of October 30, 2024. Investors can start investing with as little as ₹1,000, and redemptions come without an entry load. If redeemed within 30 days, there is a 1% exit load, which encourages long-term holding to gain the full benefit of gold’s value appreciation.

The benchmark for this fund is domestic gold prices based on the London Bullion Market Association (LBMA) spot rates, offering a reliable measure of performance. The fund is managed by Mr. Wilfred Gonsalves, an experienced fund manager known for his expertise in commodity investments.

 How the Fund Helps with Tax Saving 

Though gold itself is not traditionally associated with direct tax benefits, investing through this fund opens avenues for tax efficiency:

1. Capital Gains Taxation: 

The recent amendments to the capital gains taxation rules for Gold ETFs introduce new holding periods and tax rates, which will affect both short-term and long-term investors. Here are the key changes:

A)   Short-Term Capital Gains (STCG):

   – Old Rule: Gains from units sold within 3 years were taxed at the investor’s income tax slab rate (10%, 20%, or 30%).

   – New Rule: 

     – Transition Period (April 1, 2023 – March 31, 2025): Units sold before 12 months are taxed at the income tax slab rate.

     – Post-Transition Period: Gold ETFs bought after March 31, 2025, and sold before 12 months will continue to attract slab-based taxation.

B) Long-Term Capital Gains (LTCG):

   – Old Rule: Units held for more than 3 years were taxed at 20% with indexation benefit.

   – New Rule: Now, LTCG on units held for 12 months or more will be taxed at 12.5%, but without the benefit of indexation.

C) Impact on Investors:

   – Short-term investors: May face higher taxes due to the shorter 12-month threshold.

   – Long-term investors: Benefit from the lower 12.5% tax rate, but the removal of indexation may reduce inflation-adjusted gains.

D) Portfolio Strategies:

   – Hedging with equity ETFs or bonds can reduce volatility, and diversifying with Gold ETFs strengthens portfolio stability during market downturns or currency fluctuations.

In summary, the new rules incentivize long-term investments but may increase the tax burden for short-term holders. Investors need to adapt their strategies by aligning with these changes to optimize their returns.

E) No Wealth Tax: 

   Holding gold in physical form attracts wealth tax in some cases. However, investing through this fund avoids these complications, providing a tax-friendly alternative to owning gold directly.

F) Tax-Free Transfers Between Funds: 

   Investors can switch between different ETF-based funds or allocate investments across other Groww FOFs without triggering immediate taxation, helping them manage their tax outflows effectively.

Hedging Against Market Volatility and Inflation 

Gold has a long-standing reputation as a safe-haven asset, especially during economic uncertainties, stock market crashes, or currency depreciation. This fund allows investors to hedge their portfolios by adding an asset with a negative or low correlation to equities.

1.    Protection from Inflation: 

   When inflation rises, currency value declines, but this yellow metal generally retains or appreciates in value. By allocating part of their portfolio to this fund, investors can safeguard their purchasing power during inflationary periods.

2. Risk Management During Market Downturns: 

   Gold often outperforms equities during times of market stress. For instance, during global financial crises, it’s prices surge as investors shift their capital from riskier assets to safe-haven instruments. This fund provides a cushion for portfolios, ensuring they remain stable even in turbulent times.

3. Currency Risk Management: 

   Since gold prices are influenced by the global currency markets, particularly the USD-INR exchange rate, this fund helps offset risks when the rupee depreciates. A fall in the Indian currency boosts gold’s domestic price, leading to gains in the fund.

Diversification Benefits of Gold ETFs 

This Fund of Funds product aligns perfectly with the principle of diversification, ensuring investors reduce the overall risk of their portfolios:

 

1.    Diversifying Across Asset Classes: 

   Adding this yellow metal to a portfolio that already contains equities, debt instruments, and fixed-income products helps achieve non-correlation. This ensures that when one asset class underperforms, the others compensate, smoothing overall returns.

2. Geographical Diversification: 

   While most investments in India are concentrated in domestic assets, gold is influenced by global factors like geopolitical tensions and international monetary policies. By investing in gold ETFs through this fund, investors can gain indirect exposure to global markets without the complexity of cross-border investments.

3. Sectoral Risk Mitigation: 

   Portfolios dominated by sector-specific mutual funds (e.g., IT or banking) can become vulnerable to sector-wide downturns. Allocating to this ETF balances such risks by offering exposure to a different commodity-based sector.

Advantages Over Physical Gold and ETFs 

This fund provides a number of practical advantages over physical gold and standalone gold ETFs: 

1.    Lower Cost and Storage Convenience: 

   Investors avoid the costs associated with buying and storing it physically, such as vault fees, insurance, and making charges. 

 

2. Professional Management: 

   The fund is managed by experienced professionals, ensuring optimal performance in line with gold prices. It eliminates the need for individual tracking and trading of gold ETFs. 

3. No Demat Account Requirement: 

   Unlike ETFs, which require a Demat account, investors can access this market through this fund with minimal paperwork. This makes it more convenient for first-time investors or those without a Demat account.

 Conclusion: Why this fund is a Valuable Investment 

This fund is an excellent addition to any portfolio for those looking to benefit from gold’s stability, inflation-hedging properties, and diversification benefits. With the potential for capital gains tax efficiency through indexation, it also provides a smart way to optimize tax liabilities.

By investing in this fund, investors gain the dual advantage of professional management and hassle-free access to yellow metal’s price movements without needing a Demat account or worrying about physical storage and safety. For individuals aiming to balance their portfolios, hedge against inflation, or diversify into commodities, this fund stands out as a convenient, low-cost, and tax-efficient solution.

 FAQs

1.     What is the Groww Gold ETF Fund of Funds (FOF)? 

This is an investment product that provides exposure to gold by investing in units of Gold Exchange Traded Funds (ETFs), allowing investors to benefit from gold’s performance without holding physical gold.

1.     What are the key details of the NFO? 

– Open Date: October 16, 2024 

– End Date: October 30, 2024 

– Minimum Investment: ₹1,000 (with multiples of ₹1 thereafter) 

– Entry Load: Nil 

– Exit Load: 1% if redeemed within 30 days; Nil after 30 days 

2.     What is the investment objective of the fund? 

The fund aims to provide returns that align with the performance of the Groww Gold ETF, though it does not guarantee this outcome.

4. Why should I invest in this fund? 

Investing in this fund offers several advantages, including a hedge against inflation, portfolio diversification, low entry barriers, cost efficiency, and high liquidity.

5. What are the risks associated with investing in this fund?

 

Key risks include the price volatility of this metal, the absence of interest or dividends, potential tracking errors, currency risk, and concentration risk due to its focus on gold.

6. Who manages the fund? 

The fund is managed by Mr. Wilfred Gonsalves, who oversees the selection and investment in top-performing ETFs.

7. Do I need a demat account to invest in this fund? 

No, this fund does not require a demat account, simplifying the investment process for retail investors.

8. What is a Fund of Funds (FOF)? 

A Fund of Funds is an investment scheme that invests in other mutual funds rather than directly in securities. This fund specifically invests in Gold ETFs, providing investors with diversified exposure to gold.

9. How does this fund provide diversification? 

While it primarily focuses on gold, investing in a Fund of Funds allows exposure to different gold ETFs, which may have varying strategies and asset holdings, thus reducing the risk associated with any single ETF.

10. What is the benchmark for this fund? 

The benchmark for this fund is the domestic price of gold, based on the London Bullion Market Association (LBMA) gold daily spot fixing price.

11. How often can I redeem my investment in this fund? 

Investors can redeem their units at any time, providing high liquidity. However, exit loads apply if redeemed within 30 days from the date of allotment.

12. Are there any tax implications for investing in gold ETFs through this fund? 

Yes, investments in this may be subject to capital gains tax. Long-term capital gains (held for more than 36 months) are typically taxed at 20% with indexation benefits, while short-term gains are taxed at the investor’s applicable income tax rate.

13. Can I invest in this fund through a systematic investment plan (SIP)? 

Yes, investors can choose to invest in this fund through a SIP, allowing for regular and systematic investments over time.

14. What happens if I want to sell my units before the exit load period ends? 

If you redeem your units within 30 days of allotment, a 1% exit load will be applicable. After this period, you can redeem without any exit load.

15. What is the role of the fund manager? 

The fund manager is responsible for making investment decisions, selecting the underlying Gold ETFs, and managing the fund’s portfolio to ensure it tracks gold prices effectively.

16. How can I track the performance of this fund?

Investors can track the performance of the fund through its Net Asset Value (NAV), which is published daily, as well as through performance reports available on financial news platforms or the Groww app.