Why Zerodha MF believes its liquid ETF is ideal for traders

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Mutual funds bet big on manufacturing: Is it time to invest? For example, through this route, a trader or investor can sell stocks and buy liquid ETF units simultaneously on the same day. On a T+1 basis, stocks are debited from the demat account, and on T+1, liquid ETF units are credited, allowing the investor to start earning returns immediately. Dividend-based liquid ETFs maintain a fixed NAV of ₹1,000, offering more predictability.

Returns are generated as daily dividends and reinvested into the ETF. These reinvested units are credited to the investor's demat account on a weekly basis. These ETFs also have some disadvantages.

For instance, until the dividend units accumulate to at least one whole unit, they don’t reflect on broking platforms, However, investors can verify these units in the holding statement of the depository. Besides, fund houses provide a reinvestment statement and dividend statement showing credited units over time, said a mutual fund executive. “This shows the units that have got credited to the investor’s account over a period of time, against the units purchased by the investor," said the product head of a fund house, seeking anonymity.

Some dividend-based liquid ETFs do not reinvest dividends but pay the dividend directly to the investor in cash. However, tracking returns is challenging as dividend-linked units are paid out daily after TDS(tax deducted at source) deduction. Investors need to monitor fractional units to determine their final tax liability.

There is a tax event daily as dividends are generated daily. Dividends are paid after TDS of 10%, and the dividends are taxed at the investor's slab rate. To be sure, some of the dividend-based liquid ETFs were launched when dividends were