LIQUID BEES : a PROBLEM for small investors

This is a continuation of my earlier post on Liquid Funds. Ofcourse, Liquid Funds do provide a really cool alternative investment option to park your liquid cash. Especially they provide a Tax benefit. Read more about Tax for Liquid Funds.

I bought 2 liquidbees a few days ago, just for trial basis, to find out about how dividend for liquid bees is distributed etc. . I realised that in my Demat account, the number of liquid bees had increased from 2 to 2.002 ! I thought, just like mutual fund units, liquid bees (which after all is a mutual fund unit) can be traded in fractional units. Maybe this is how they distribute dividend, increase your units. Because the price of Liquid bees is always constant- Rs. 1000/-. But the system did not allow me to sell fractional units ! Ofcourse the number of liquid bees i had was negligible, but I think this is still a problem with them. It does not seem to be possible to liquidate the 'fractional part' of your liquid bees units. I wonder if i had waited for some more time, a n actual cash dividend would have been deposited in my bank account. In any case another and a bigger problem is the brokerage. You do have to pay brokerage (delivery) when you buy and sell Liquid bees. So with the Securities Transaction tax, service tax etc. You end up paying around 1.4% of brokerage on your invested amount, 0.7% when you buy, and 0.7% when you sell. This may be a significant amount compared to the amount of gain you are looking forward to extract from Liquid Funds. Nevertheless, this is only a problem for small investors, because if you are planning to buy liquid bees for amount greater than Rs. 25 lacs, then you can directly buy them from Benchmark Mutual Funds, hopefully without having to pay any brokerage.

Small investors may alternatively look for other liquid funds (not exchange traded funds) which have no or low entry load and exit load.

Hope this helps you in making a decision !
If you have any more information on this, i would be grateful if you post it in a comment.

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Oct 7, 2008

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