As a mutual fund distributor, I've often advised clients on low-risk, high-liquidity options like Liquid ETFs, which offer stable returns with minimal volatility. These funds typically invest in short-term debt instruments and provide daily growth, making them ideal for parking funds while earning a modest yield. In this article, we'll explore a hypothetical strategy: investing a lump sum in a Liquid ETF, holding it for an initial waiting period, and then implementing alternate-day investments and redemptions to lock in profits while maintaining exposure.
We'll calculate the profit percentages on each redemption using the First-In-First-Out (FIFO) method, focusing on when (in terms of hold days) the redemptions achieve specific profit milestones like 1%, 1.5%, up to 20%. This is not the overall fund profit but the realized gain on the redeemed shares/units. We'll assume a constant daily NAV growth of 0.02% (compounded), which aligns with typical annual yields of 7-8% for Liquid ETFs.
Instrument: Liquid ETF
Initial NAV: ₹1000
Daily Growth Rate: 0.02% (i.e., NAV increases by factor 1.0002 per day)
Initial Investment: 100 shares (₹100,000)
Daily SEP: 1 Share (compulsory)
Waiting Period: 3 months (~90 days) before starting systematic trades
Systematic Plan:
Buy 10 shares every Monday & Wednesday
Redeem 10 shares every Tuesday & Thursday
Accounting Method: FIFO (first‑in, first‑out) for redemptions.
Manual Calculations: The Math of Compounding
To find the number of days (n) required to hit a profit target (P), we use the daily compounding formula:
NAV Growth Formula
Daily NAV after days:
Approximate growth:
1% gain ≈ 50 days
1.5% gain ≈ 75 days
2% gain ≈ 100 days
3% gain ≈ 150 days
5% gain ≈ 250 days
10% gain ≈ 500 days
15% gain ≈ 750 days
20% gain ≈ 1000 days
(These are rounded since compounding is continuous.)
FIFO Redemption Logic
After 90 days, NAV ≈ ₹1018.16
First redemption (Day 91, Tuesday):
Redeem 10 shares bought at ₹1000 (initial lot)
Sale price = 10 × 1018.16 = ₹10,181.6
Cost = ₹10,000
Profit = ₹181.6 (≈1.82%)
Thus, every redemption after the waiting period yields profit depending on how long the redeemed shares have been held.
Scaling the Strategy (200 Shares / 20 Unit Redemption)
The logic remains identical for 200 shares with a 20-share rotation.
The Percentage Profit depends only on the Time in the Queue.
Since the ratio is the same (10:1), the shares still stay in the "Rotation Cycle" for the same amount of time once the initial buffer is gone.
Result: You will hit the exact same milestones at the exact same time; only your Absolute Rupee Profit will double.
The Strategy Setup (₹1,00,000 Example)
Initial Capital: ₹1,00,000 (100 Shares at ₹1,000 NAV).
Daily Growth (r): 0.02% (0.0002).
Daily SIP: 1 Share
The Waiting Period: 3 Months (approx. 90 Days) of doing nothing.
The Rotation Phase: * Mon/Wed: Buy 10 Shares (Injection).
Tue/Thu: Sell 10 Shares (Redemption).
The FIFO Profit Data Table
This table tracks when your Tuesday/Thursday redemptions will hit your desired profit targets, assuming you start your rotation after the initial 90-day wait.
| Profit Target (%) | Holding Period Needed | Redemption Value (Per 10 Shares) | Estimated Day of First Achievement |
| 1.0% | 50 Days | ₹10,100 | Day 92 (1st Redemption session) |
| 1.5% | 75 Days | ₹10,150 | Day 92 (1st Redemption session) |
| 2.0% | 100 Days | ₹10,200 | Day 100 (5th Redemption session) |
| 3.0% | 148 Days | ₹10,300 | Day 148 (Hold original shares longer) |
| 5.0% | 244 Days | ₹10,500 | Day 244 |
| 10.0% | 477 Days | ₹11,000 | Day 477 |
| 15.0% | 699 Days | ₹11,500 | Day 699 |
| 20.0% | 912 Days | ₹12,000 | Day 912 |
Scaling the Strategy: The "200 Share" Rule
If you double your investment to ₹2,00,000 (200 Shares) with Daily 2 Shares SEP and increase your rotation to 20 shares (alternate days) after 90 Days:
Percentage remains identical: The math of time (n) does not change. Whether you sell 10 shares or 10,000, they still need 244 days to grow by 5%.
Absolute Profit Doubles: Instead of ₹500 profit on a 5% gain, you would net ₹1,000.
Consistency: The "FIFO Loop" works because the ratio of your total holdings to your withdrawal rate (10:1) defines how long a share stays in the "loop." As long as you keep that ratio, your results stay consistent.
Key Insight
FIFO ensures older shares are redeemed first, so profits appear sooner (already >1% after 90 days).
Alternate day buy/sell keeps portfolio size stable but generates realized gains on redemptions.
Liquid ETFs are low‑risk, so this strategy is more about systematic profit booking than aggressive growth.
Important: Tax Insight
In the current 2026 tax regime, Liquid ETF gains are generally treated as Short-Term Capital Gains (STCG) and taxed at your slab rate. Since you are using FIFO, your broker's capital gains statement will automatically pick the oldest (cheapest) units, showing the highest possible profit—and tax—per transaction.
Conclusion
This strategy demonstrates how Liquid ETFs can provide steady, low-risk income through systematic redemptions while reinvesting to sustain exposure. With a 3-month wait, you can lock in ~1.8-2.2% on initial redemptions, then ~0.42% ongoing—suitable for short-term goals. For higher targets (5%+), extend the waiting period or reduce redemption frequency to increase hold times. Remember, real-world factors like taxes (STCG at 20% for <1 year), exit loads, and market volatility apply. As always, past performance isn't indicative of future results—tailor this to your risk profile and consult a SEBI-registered advisor.
Note: This is a simplified model for educational purposes—actual returns vary based on market conditions, taxes, and expenses.
Always consult a Financial Advisor before implementing.
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