Investing Collateral Liquid fund Pledge

Collateral (liquid funds) on Kite

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Liquid fund collateral on Kite is the haircut-adjusted value of liquid debt mutual fund units pledged for F&O margin. It has two advantages over equity collateral: lower haircut, and classification as cash-equivalent for SEBI’s 50:50 cash component rule.

Why liquid fund collateral is preferred

AspectEquity collateralLiquid fund collateral
Haircut10-50% (depends on scrip)Typically 5-10%
Counts as cash for 50:50No (counts as non-cash)Yes (cash-equivalent)
LiquidityDaily intraday sellT+1 redemption
VolatilityHigh (equity)Low (liquid debt)
Pledge feeSameSame

For an F&O trader who needs to meet the 50% cash requirement without keeping idle cash, liquid fund collateral is the efficient solution: it earns money market returns (~5-7% per annum), counts as cash for margin, and supplies collateral with low haircut.

Eligible liquid funds

Zerodha (and SEBI) accept a defined list of liquid mutual fund schemes as collateral. Typical accepted schemes:

  • Nippon India ETF Liquid BeES (LIQUIDBEES).
  • ICICI Prudential Liquid Fund.
  • HDFC Liquid Fund.
  • SBI Liquid Fund.
  • Aditya Birla Sun Life Liquid Fund.

Refer to the Zerodha collateral list for the current accepted schemes and their haircut percentages.

LIQUIDBEES specifically

LIQUIDBEES (Nippon India ETF Liquid BeES) is the most commonly used cash-collateral instrument on Zerodha. It:

  • Trades on NSE like an equity (BeES = Benchmark Exchange-traded Scheme).
  • Has a fixed Rs 1,000 per unit NAV (dividend reinvestment plan structure).
  • Pays daily dividend in the form of additional fractional units.
  • Has low haircut (around 10%).
  • Counts as cash-equivalent for the 50:50 rule.

For Rs 5 lakh of LIQUIDBEES:

  • Collateral value: ~Rs 4.5 lakh.
  • Cash-equivalent value: Rs 4.5 lakh (counts toward cash component).
  • Daily return: ~Rs 70-80 per day (at ~5-6% annualised on Rs 5 lakh).

How to acquire LIQUIDBEES

  1. Add funds to Kite trading account.
  2. Buy LIQUIDBEES via the Kite marketwatch (NSE symbol: LIQUIDBEES).
  3. Settles T+1 like any equity buy.
  4. Pledge via Console > Pledged shares > New pledge.
  5. Approve via depository OTP.
  6. Collateral value appears on Kite funds.

Daily dividend mechanics

LIQUIDBEES distributes daily dividend as additional fractional units. The fractions accumulate; at month-end (or quarter-end), they consolidate into whole units. The effective return is on the units held.

For tax: the daily distribution is technically income (dividend), but the structure (reinvestment) means it does not appear as a cash dividend. For tax purposes, the appreciation in unit count is treated as capital gain at redemption.

Comparing LIQUIDBEES to other liquid funds

AspectLIQUIDBEES (ETF)Liquid MF scheme
Daily NAV changeFractional unit accumulationNAV grows daily
LiquidityIntraday (NSE)T+1 redemption via AMC
PledgeStandard depository pledgePledge via AMC’s process
Haircut~10%~5-10% varying
Income visibilityUnit count growsNAV grows

For most F&O traders, LIQUIDBEES is simpler operationally because it sits in the demat account like any equity.

Selling pledged liquid fund collateral

To sell:

  1. Un-pledge via Console.
  2. Approve via depository OTP.
  3. Sell on NSE (for LIQUIDBEES).

The unpledge takes ~1 hour during market hours.

See also

External references

References

  1. SEBI, 50:50 cash collateral rule and liquid fund treatment, sebi.gov.in.
  2. Zerodha Support, Liquid fund collateral and LIQUIDBEES, support.zerodha.com.
  3. Nippon India MF, LIQUIDBEES scheme information document, nipponindiaim.com.

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