Liquid ETFs: Brokers nudge investors to park idle cash in Liquid ETFs

Mumbai: Brokers are increasingly steering clients towards liquid exchange-traded funds (ETFs) to keep idle cash within their systems. Current regulations require brokers to transfer unutilised client funds back to their bank accounts at the end of every month. By encouraging investors to park this money in liquid ETFs – which trade like shares – brokers are able to avoid fund outflows and retain assets on their platforms. Over the last year, assets under management in liquid ETFs have risen 31%, from ₹17,200 crore to ₹23,550 crore.

The growing popularity of liquid ETFs has prompted a flurry of new launches, especially by various brokers and financial services firms such as Angel, Mirae, Groww, Shriram, Bajaj Finserv and Zerodha. Most of these firms have both stock broking and mutual fund arms.

Their pitch is simple: Instead of transferring the share sale proceeds back to bank accounts – and then back to the broker account later – investors can now park the funds in liquid ETFs.

“As liquid ETFs trade in the same segment as equity, investors can seamlessly move from equity to cash and vice versa or even pledge as collateral for margin to the exchange,” says Vishal Jain, chief executive officer, Zerodha Mutual Fund. For investors, this idle money can generate returns of 4-6%, higher than typical savings bank account interest.

Zerodha’s Nifty 1D Liquid ETF, which has assets under management of ₹4,960 crore, has seen its average daily traded value on NSE rise nearly four-fold over the past year. Between February 1 and April 30, 2025, the average daily traded value stood at ₹109 crore, with the average trade size being ₹1.2 lakh. During the same period last year, the average daily volume was ₹28 crore, with the average trade size at ₹1.4 lakh.

As a debt product, liquid ETFs are not subject to Securities Transaction Tax (STT). To further boost appeal, many brokers have waived brokerage charges on the buying and selling of these ETFs.”In an era of increasing competition, brokers need to generate higher returns for investors,” says Piyush Chandra, head – mutual funds at IIFL Capital. “This product generates some return, rather than money lying idle in the ledger.”These ETFs primarily invest in overnight instruments like tri-party repo on government securities, treasury bills and reverse repos, making them relatively low-risk and high on liquidity.