An investor can park the cash in Overnight Funds or Safe Liquid Funds like PPFAS and Quantum Liquid Funds. These funds will give you 3% to 5% returns only based on RBI rates but those are flexible and you can withdraw funds when ever required within 1 day.
I have been using this strategy for about 3 years now and I am satisfied with this strategy. I do not bother about returns as I consider this as a cash component of my Direct Equity Portfolio, so my aim is safety, and liquidity.
Fixed Deposits of large banks like HDFC Bank, ICICI Bank and SBI are also good candidates as Post Tax returns could be 4% to 5% and liquidity is even better. ICICI Bank allows partial withdrawal as well. Only drawback is you need to keep adding more FD(s) and keep closing those online when you need funds. Hence Overnight Funds and Liquid Funds could be better.
I do not bother about returns generated by this cash component as any way it is part of Direct Equity Portfolio and will generate higher returns once invested in stocks. I do not invest this cash in any other Index ETF or low beta stock as you may encounter negative returns over there. When market corrects sharply, these low beta stocks also correct many times as per my experience. There is no point in taking such risk in my opinion.
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