Examine Liquid Mutual Funds vs Liquid ETFs in India 2025. Perceive security, returns, taxation, liquidity, iNAV points, and which fits you finest.
Relating to parking short-term surplus or creating an emergency fund, most Indian buyers flip to Liquid Mutual Funds. Lately, another choice—Liquid ETFs—has began attracting consideration, particularly after the recognition of Nippon’s Liquid BeES. Each appear to do the identical job: spend money on ultra-short-term, protected, high-quality debt devices like Treasury Payments and Business Papers. However in follow, they work otherwise, and the distinction turns into essential if you really attempt to purchase, promote, or redeem.
Liquid Mutual Funds vs Liquid ETF – Which is Higher in India?
On this put up, let’s dig deep into Liquid Mutual Funds vs Liquid ETFs within the Indian context of 2025. We are going to cowl taxation, liquidity, NAV vs iNAV, execution dangers, and who ought to use which product. The dialogue is written in easy, explanatory language, avoiding jargon wherever potential.
How Do Liquid Mutual Funds Work?
A Liquid Mutual Fund is the best short-term funding choice. You place in cash immediately, and the fund invests in very quick maturity devices. Your funding begins incomes from the identical day (if positioned earlier than the cut-off). The following day, the models are allotted based mostly on the day’s declared Web Asset Worth (NAV).
If you happen to redeem, the fund home straight credit the cash into your checking account, normally the subsequent enterprise day (T+1). Some funds additionally provide instantaneous redemption as much as Rs.50,000 per day per PAN, making them much more handy for emergency functions.
The important thing right here is that all the pieces occurs on the declared NAV. You don’t want to fret about timing, liquidity available in the market, or whether or not somebody is prepared to purchase your models.
How Do Liquid ETFs Work?
A Liquid ETF, like Nippon Liquid BeES, works otherwise. Whereas the portfolio is broadly the identical as a liquid fund, the best way you transact is by way of the inventory alternate. Meaning:
- You want a demat account.
- You purchase or promote models on the prevailing market worth on NSE/BSE.
- Settlement occurs like every inventory commerce (T+1).
This sounds easy, however there’s a catch. The ETF has two reference values:
- NAV: Declared as soon as day by day, similar to a mutual fund.
- iNAV (Indicative NAV): Up to date each 15 seconds by NSE. This displays the honest worth of the underlying portfolio through the buying and selling day.
In principle, the traded worth of an ETF ought to match its iNAV. However in follow, particularly in India, on account of restricted volumes, ETFs typically commerce at a small premium or low cost to iNAV. This creates an execution danger. If you happen to purchase at a premium and later promote at a reduction, your returns could also be worse than somebody in a plain liquid fund, even when the underlying portfolio carried out identically.
NAV vs iNAV – The Transparency Problem in India
In developed markets just like the US, iNAV monitoring is close to good as a result of ETFs are extremely liquid and market makers be certain that the traded worth hardly ever deviates from iNAV. Traders even have entry to wealthy datasets, together with historic iNAV values, making it simple to back-test how environment friendly an ETF has been.
In India, the state of affairs is completely different.
- The NAV is obtainable day by day from the AMC or AMFI.
- The traded worth is seen from NSE or BSE historic quotes.
- However the iNAV historical past is just not accessible publicly. NSE solely exhibits it dwell throughout market hours, and no archive exists for retail buyers.
This creates a information transparency hole. Retail buyers can not confirm whether or not the ETF constantly traded near its honest worth prior to now. This lack of historic iNAV makes Liquid ETFs tougher to investigate in comparison with Liquid Mutual Funds, the place day by day NAV historical past is publicly accessible on AMFI’s web site.
In different phrases, whereas mutual funds offer you full transparency, ETFs in India nonetheless require you to belief that execution was honest, with out a strategy to validate traditionally.
Taxation in 2025 – Uniform for Each
Till 2023, debt mutual funds (together with liquid funds) loved favorable long-term capital good points taxation with indexation advantages if held for greater than 3 years. However this benefit ended from 1st April 2023.
Now, in 2025, each Liquid Mutual Funds and Liquid ETFs are taxed identically:
- Any good points, no matter holding interval, are taxed as per your revenue tax slab.
- There isn’t a long-term or short-term differentiation.
This implies for an individual within the 30% tax bracket, whether or not you maintain a liquid fund for sooner or later or one yr, or whether or not you maintain an ETF, the tax remedy is similar. Due to this fact, taxation not performs a job in selecting between the 2.
Liquidity – The Actual Deal Breaker
Relating to liquidity, mutual funds and ETFs behave very otherwise in India.
- Liquid Funds: Redemption is all the time accessible at NAV. No dependency on patrons or sellers. AMCs assure liquidity, and the cash reaches your checking account in T+1 (or immediately for some portion in choose funds).
- Liquid ETFs: Liquidity depends upon market individuals. If you wish to promote, there have to be patrons on the worth you anticipate. On low-volume days, you could face a large bid-ask unfold, which suggests you both promote at a lower cost or wait longer. Whereas establishments can create or redeem ETF models straight with the AMC (eradicating liquidity issues), retail buyers rely totally on alternate liquidity.
This makes Liquid ETFs much less dependable for emergency cash in India. In superior markets, the place ETF volumes run into tens of millions of {dollars} day by day, this isn’t a problem. However in India, the place buying and selling volumes in liquid ETFs are comparatively skinny (apart from Liquid BeES to some extent), retail buyers face real execution dangers.
Who Ought to Use What?
Liquid Mutual Funds are higher fitted to most retail buyers. They’re easy, clear, simple to transact, and supply predictable liquidity. In case your aim is to park emergency funds, or short-term cash for upcoming bills, liquid funds are the clear winner.
Liquid ETFs, then again, work higher for:
- Corporates, HNIs, and establishments who already use inventory alternate infrastructure.
- Merchants who need to use ETFs as collateral in derivatives.
- Traders preferring intraday liquidity (shopping for and promoting inside market hours).
For a standard retail investor, the demat requirement, buying and selling execution, iNAV premium/low cost, and liquidity dangers outweigh the small value effectivity advantages of ETFs.
FAQs on Liquid Mutual Funds vs Liquid ETF
Are Liquid ETFs safer than Liquid Mutual Funds?
Each spend money on the identical protected short-term devices. The distinction is just not portfolio security, however execution security. Mutual funds give assured NAV-based execution, whereas ETFs might commerce away from iNAV on account of market liquidity.
Why does iNAV matter for ETFs and the place can I examine it?
iNAV displays the real-time honest worth of an ETF. Ideally, ETF costs ought to match iNAV, however in India, they typically deviate on account of low liquidity. Reside iNAV may be checked on NSE’s web site throughout market hours, however no historic information is obtainable for retail buyers. This transparency hole makes it tougher to evaluate ETF effectivity in India.
Can Liquid ETFs give higher returns than Liquid Mutual Funds?
The underlying returns are the identical, however ETFs might have decrease bills. Nonetheless, any profit may be worn out for those who purchase at a premium or promote at a reduction to iNAV. So in follow, returns may be worse if execution is poor.
Which is extra liquid in India—Liquid ETF or Liquid Mutual Fund?
Mutual funds assure liquidity by way of AMC redemption. ETFs depend upon buying and selling volumes and may face liquidity points. Therefore, for Indian retail buyers, liquid funds are extra liquid in follow.
How are Liquid ETFs taxed in 2025 in comparison with Liquid Mutual Funds?
Each are taxed the identical—good points are added to revenue and taxed as per your slab, with no long-term profit. This rule has been in impact since April 2023.
Can retail buyers use Liquid ETFs for emergency funds?
Whereas technically potential, it isn’t sensible. ETFs depend upon alternate liquidity and should not allow you to exit at a good worth throughout emergencies. Mutual funds are much more dependable for this goal.
Who ought to favor Liquid ETFs over Mutual Funds?
ETFs are appropriate for establishments, corporates, and energetic merchants who want intraday liquidity or collateral utilization. For on a regular basis retail buyers, liquid funds stay the higher alternative.
Conclusion
The talk between Liquid Mutual Funds vs Liquid ETFs boils right down to execution and transparency in India. Each spend money on protected short-term debt devices, each are equally taxed, and each intention to supply low-risk returns. However mutual funds provide clean, predictable liquidity and full transparency by way of day by day NAV historical past. ETFs, whereas environment friendly in principle, endure from skinny buying and selling volumes and the absence of historic iNAV information for retail buyers, making them much less dependable for on a regular basis buyers.
Till Indian markets deepen and information turns into extra clear, Liquid Mutual Funds stay the superior alternative for retail buyers, whereas Liquid ETFs serve area of interest wants of establishments and complex market individuals.
Word – Discuss with our earlier posts on Debt Mutual Funds at “Debt Mutual Funds Fundamentals“.
