Experts believe that an emergency fund should be kept to deal with any sudden emergency such as loss in capital market, loss of job, medical emergency.
How to Make Emergency Fund: In the life of a common man, an emergency situation can come at any time regarding money. Therefore, it is very important to prepare well in advance about it. Experts also believe that everyone should keep an emergency fund to deal with any sudden emergency situation like capital market loss, job loss, medical emergency etc. Anyway, talk about the last 2 to 2.5 years, the corona virus epidemic has affected the life of the common man in many ways. Since then the importance of emergency funds has increased. Many people are starting to think about this now.
where to put your money
AK Nigam, director, BPN Fincap, says that emergency fund means investing money in a place where there is no block for a long time. Second, there should be no liquidity problem as and when needed. However, every person should think about creating an emergency fund based on his financial capacity. He says that due to Kovid 19, the big economies of the world have not yet become completely normal. The work or employment of many people has also been greatly affected. People have also suffered in the capital market. In such a situation, the importance of emergency fund is very much at all times. For this, he has insisted on keeping some cash in the bank along with arbitrage funds, overnight funds, short term bank FDs. He has advised to stay away from most categories of debt funds for now.
Benefits of an emergency fund
Ajit Menon, CEO, PGIM India Mutual Fund says that emergency funds are very important in today’s times. It is not only for emergencies, but by having it, your confidence also remains. You can also remain stress free by having an emergency fund lying around. He says that on the basis of market conditions, after consulting the advisor, emergency fund should be prepared. He says that to build an emergency fund, it is necessary to invest in a safe asset class and not where the returns are linked to the risk of the market.
It is a debt fund which invests in bonds maturing in a day. Bonds are bought at the beginning of every trading day which mature on the next trading day. Overnight funds are a better option for those seeking safe returns, where the maturity is of 1 day. With a maturity of 1 day, the risk is reduced here due to investing 100% of the amount in the collateralized borrowing and lending obligation market. However, due to the maturity of 1 day, the returns are somewhat less in them.
Short Term Bank FDs
Many banks also offer the option of doing FD for a period of 1 year or less. Minimum FD starts from Rs 1000 in most of the banks. The maximum amount can be anything.
It uses its funds to take advantage of the difference in the price of shares in the cash market and derivatives market. These schemes of mutual funds buy shares in the cash segment and simultaneously sell futures in the derivatives segment of the same company. This is done only when futures trade at a reasonable premium. This is the reason why this fund performs better in times of high volatility in the stock market. After investing in equities, the fund manager hedges that transaction in the derivatives market. This reduces the risk to a great extent on the shares bought in the cash market.
Recurring Deposit (RD)
Interest is getting 5.8 percent per annum on RD in the post office. At the same time, interest is getting between 5 to 6 percent in different banks. RDs with a tenure of up to 1 year can be extended for up to 10 years.
(Disclaimer: Financial Express does not give any investment advice. Before investing please do your own research or consult your financial advisor.)