{"id":7120,"date":"2018-08-25T10:03:45","date_gmt":"2018-08-25T04:33:45","guid":{"rendered":"http:\/\/www.apnaplan.com\/?p=7120"},"modified":"2018-08-25T10:05:23","modified_gmt":"2018-08-25T04:35:23","slug":"invest-emergency-fund","status":"publish","type":"post","link":"https:\/\/www.apnaplan.com\/invest-emergency-fund\/","title":{"rendered":"Where should you Invest your Emergency Fund?"},"content":{"rendered":"
We live in an uncertain world and emergencies can arise anytime. It could be due to sudden illness, a car breakdown, an emergency trip, emergency purchase, home\/appliances repair, delayed salary or job loss. We need to be prepared for the same at least financially.<\/p>\n
Ask any financial planner and they recommend at least 6 months of expenses as emergency fund.<\/strong> However as everything in personal finance the quantum of funds required depends on personal profile and situation<\/strong>. Here are some situations:<\/p>\n Once you finalize the emergency corpus, the next question is where to keep\/invest this. As this corpus is meant for emergency the objective should be easy and quick access, lesser risk and high liquidity<\/strong>. Also you need not keep all amount in one place, it can be spread across multiple options.<\/p>\n [dropcap]1.[\/dropcap] Cash<\/span><\/strong> \u2013 You must keep small amount in cash (Rs 5,000 \u2013 10,000) at all times at home\/office or while travelling. Though ATMs are now present everywhere but in emergency you would not rush to ATM but rather handle the situation. It would also prove to be a much needed resource in case of any natural calamity. As was the case in recent Chennai floods \u2013 almost all ATMs stopped working or were empty of cash. So even though you had money in bank you could not buy anything. Restoring these services takes time and you should have minimum resources to survive until then.<\/p>\n [dropcap]2.[\/dropcap] Saving Account<\/span><\/strong> \u2013 This is the default option to park emergency funds. You can withdraw money anytime and it\u2019s easy to operate. The problem is the returns are low \u2013 3.5% for most banks while some offer interest up to 7%. \u00a0Ensure you have a debit card with adequate cash withdrawal limit.<\/p>\n Also Read:<\/strong>\u00a0Which bank offers highest interest rate on savings account in India?<\/a><\/p>\n<\/blockquote>\n [dropcap]3.[\/dropcap] Sweep-in Account<\/span><\/strong> \u2013 You can use sweep-in accounts to get the same liquidity as savings account but with better returns. In case of sweep-in accounts, automatic fixed deposits are created as soon as the balance in saving account exceeds certain threshold. If you withdraw money which is more than that in savings account, the deposit is automatically broken and credited to savings account. Most banks offer this facility and your excess balance would get interest of 1 year FD tenure.<\/p>\n [dropcap]4.[\/dropcap] Fixed\/Recurring Deposit<\/span><\/strong> \u2013 if you do not have sweep in account facility or want to take advantage of higher interest rates on certain deposits, you can keep money in fixed deposits. FDs are easy to break in case its online. But in case you do not have online access, a visit to branch may be required. Recurring deposits<\/a> are especially useful when you are building your emergency corpus<\/strong>. You can do RD of fixed amount, enable auto-debit and accumulate your pre-determined amount with discipline.<\/p>\n Also Read:\u00a0<\/strong>Highest Interest Rate on Bank Fixed Deposits across 44 banks<\/a><\/p>\n<\/blockquote>\n [dropcap]5.[\/dropcap] Current Account linked to loans<\/span><\/strong> \u2013 there are some loans like SBI Max Gain Home Loan where the Home loan is linked to a current account. While calculating the interest component on payment of EMI, the loan balance amount taken is net of money in current account. So keeping money in current account reduces the interest paid on loan. Therefore, these accounts can be used to park emergency funds.<\/p>\n [dropcap]6.[\/dropcap] Bank Overdraft against Fixed Deposits<\/span><\/strong>\u00a0\u2013Most banks provide overdraft facility against your fixed deposits. The good thing is the overdraft loan can be up to 90% of the fixed deposit. Also, some banks like SBI has started providing overdraft online. This can be quite helpful in emergency situations.<\/p>\n [dropcap]7.[\/dropcap] Liquid\/Short Term debt funds<\/span><\/strong> \u2013 this suits people who are comfortable with mutual funds and have online access to invest or redeem these funds. The returns are slightly higher than short term fixed deposits and are more tax efficient if the amount remains invested for more than 3 years. Reliance Mutual Fund also issues free ATM card linked to your liquid fund investment. You can withdraw up to 50% in case of emergency. SIP in these mutual funds can help you disciplined investment to build your emergency corpus.<\/strong> Do not invest in long term or GILT funds as their returns can be volatile and you might have monthly bouts of negative returns especially in rising interest rate cycle.<\/p>\n\n
Where to Keep\/Invest Emergency Fund?<\/h2>\n
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