Evaluate Liquid Mutual Funds vs Liquid ETFs in India 2025. Perceive security, returns, taxation, liquidity, iNAV points, and which fits you finest.
In the case of parking short-term surplus or creating an emergency fund, most Indian buyers flip to Liquid Mutual Funds. In recent times, an alternative choice—Liquid ETFs—has began attracting consideration, particularly after the recognition of Nippon’s Liquid BeES. Each appear to do the identical job: put money into ultra-short-term, secure, high-quality debt devices like Treasury Payments and Industrial Papers. However in apply, they work in a different way, 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 only short-term funding possibility. You place in cash at present, 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 subsequent day, the models are allotted primarily based on the day’s declared Internet Asset Worth (NAV).
In the event you redeem, the fund home immediately credit the cash into your checking account, normally the following enterprise day (T+1). Some funds additionally supply on the spot 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 the whole lot occurs on the declared NAV. You don’t want to fret about timing, liquidity out there, or whether or not somebody is prepared to purchase your models.
How Do Liquid ETFs Work?
A Liquid ETF, like Nippon Liquid BeES, works in a different way. Whereas the portfolio is broadly the identical as a liquid fund, the best way you transact is through the inventory trade. Which means:
- You want a demat account.
- You purchase or promote models on the prevailing market worth on NSE/BSE.
- Settlement occurs like several inventory commerce (T+1).
This sounds easy, however there’s a catch. The ETF has two reference values:
- NAV: Declared as soon as every day, similar to a mutual fund.
- iNAV (Indicative NAV): Up to date each 15 seconds by NSE. This displays the truthful worth of the underlying portfolio in the course of the buying and selling day.
In concept, the traded worth of an ETF ought to match its iNAV. However in apply, particularly in India, on account of restricted volumes, ETFs usually commerce at a small premium or low cost to iNAV. This creates an execution threat. In the event you 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 excellent as a result of ETFs are extremely liquid and market makers be sure that the traded worth hardly ever deviates from iNAV. Traders even have entry to wealthy datasets, together with historic iNAV values, making it straightforward to back-test how environment friendly an ETF has been.
In India, the state of affairs is completely different.
- The NAV is accessible every day from the AMC or AMFI.
- The traded worth is seen from NSE or BSE historic quotes.
- However the iNAV historical past will not be obtainable publicly. NSE solely reveals it stay throughout market hours, and no archive exists for retail buyers.
This creates a knowledge transparency hole. Retail buyers can not confirm whether or not the ETF constantly traded near its truthful worth up to now. This lack of historic iNAV makes Liquid ETFs more durable to research in comparison with Liquid Mutual Funds, the place every day NAV historical past is publicly obtainable 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 truthful, with out a method to validate traditionally.
Taxation in 2025 – Uniform for Each
Till 2023, debt mutual funds (together with liquid funds) loved favorable long-term capital positive aspects 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 positive aspects, no matter holding interval, are taxed as per your revenue tax slab.
- There is no such thing as 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 in the future or one yr, or whether or not you maintain an ETF, the tax therapy is similar. Due to this fact, taxation now not performs a task in selecting between the 2.
Liquidity – The Actual Deal Breaker
In the case of liquidity, mutual funds and ETFs behave very in a different way in India.
- Liquid Funds: Redemption is all the time obtainable 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 is dependent upon market members. If you wish to promote, there have to be patrons on the worth you count on. On low-volume days, it’s possible you’ll face a large bid-ask unfold, which implies you both promote at a lower cost or wait longer. Whereas establishments can create or redeem ETF models immediately with the AMC (eradicating liquidity considerations), retail buyers rely completely on trade 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} every day, this isn’t a problem. However in India, the place buying and selling volumes in liquid ETFs are comparatively skinny (aside 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, straightforward to transact, and supply predictable liquidity. In case your objective is to park emergency funds, or short-term cash for upcoming bills, liquid funds are the clear winner.
Liquid ETFs, however, work higher for:
- Corporates, HNIs, and establishments who already use inventory trade infrastructure.
- Merchants who wish 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 price effectivity advantages of ETFs.
FAQs on Liquid Mutual Funds vs Liquid ETF
Are Liquid ETFs safer than Liquid Mutual Funds?
Each put money into the identical secure short-term devices. The distinction will not be 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 test it?
iNAV displays the real-time truthful worth of an ETF. Ideally, ETF costs ought to match iNAV, however in India, they usually deviate on account of low liquidity. Dwell iNAV may be checked on NSE’s web site throughout market hours, however no historic knowledge is accessible for retail buyers. This transparency hole makes it more durable to guage 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. Nevertheless, any profit may be worn out if you happen to purchase at a premium or promote at a reduction to iNAV. So in apply, returns may be worse if execution is poor.
Which is extra liquid in India—Liquid ETF or Liquid Mutual Fund?
Mutual funds assure liquidity through AMC redemption. ETFs depend upon buying and selling volumes and might face liquidity points. Therefore, for Indian retail buyers, liquid funds are extra liquid in apply.
How are Liquid ETFs taxed in 2025 in comparison with Liquid Mutual Funds?
Each are taxed the identical—positive aspects 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’s not sensible. ETFs depend upon trade liquidity and should not allow you to exit at a good worth throughout emergencies. Mutual funds are way more dependable for this goal.
Who ought to want 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 all the way down to execution and transparency in India. Each put money into secure short-term debt devices, each are equally taxed, and each goal to supply low-risk returns. However mutual funds supply clean, predictable liquidity and full transparency by every day NAV historical past. ETFs, whereas environment friendly in concept, endure from skinny buying and selling volumes and the absence of historic iNAV knowledge for retail buyers, making them much less dependable for on a regular basis buyers.
Till Indian markets deepen and knowledge 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 members.
Word – Check with our earlier posts on Debt Mutual Funds at “Debt Mutual Funds Fundamentals“.
