A client holds Rs 12 crore of cash he will need in three tranches over the next year. Build a ladder from liquid funds, arbitrage funds and treasury bills, and compare post-tax yields.

Liquid fund for the 3-month money, arbitrage funds for the 6- and 12-month money. After tax the arbitrage fund keeps about 5.20% against about 4.1% for liquid funds and treasury bills, because its gains are taxed like equity. The 3-month tranche goes to a liquid fund because its date is uncertain. The ladder earns about Rs 39.5 lakh after tax, against Rs 32.1 lakh with everything in a liquid fund.

Match each rupee to the date it is needed, then look for yield. A household paying school fees in June, a car loan in September and a wedding in March does not keep all three in one account; each has its own date. Money needed on a known date should sit in something that is worth its full value on that date and not a week later. So the ladder starts from Kishore's three dates, and only then asks which instrument earns most after tax for each.

Treasury bills and liquid funds are taxed like interest at his marginal rate, so 6.8% becomes 4.15% and 6.8% becomes 4.15%. An arbitrage fundA fund that buys shares in the cash market and sells the same shares in the futures market, earning the gap between the two prices with almost no exposure to market direction; it is taxed like an equity fund. earns a little less before tax but is taxed like equity: 6.5% becomes 5.20%. A lower pre-tax yield can win by more than a point after tax when the tax treatment differs.

Because the table assumes that everything goes to plan. The arbitrage edge on Rs 3 crore for three months is under Rs 1 lakh after tax, but an arbitrage fund's return over any single quarter depends on how wide the cash-futures gap is, can include early exit loads, and takes a few days to pay out. For money whose payment date the builder controls, next-day access is worth more than the extra yield. A 91-day treasury bill has the opposite problem: sovereign and date-certain, but fixed to a date that may not be the builder's date. The 6- and 12-month tranches have fixed dates and time for the arbitrage return to average out, so there the tax edge is worth taking.

Name the risks honestly. None of these is a deposit. Liquid and arbitrage funds carry small but real credit and liquidity risk, and arbitrage returns vary month to month. The 364-day treasury bill is the cleanest instrument if Kishore values certainty of the Rs 5 crore on the day above roughly 1 point of post-tax yield, and that is his choice to make once he sees both.