Does it make sense to keep huge Emergency Fund in liquid fund ?

POSTED BY Raju Sagi ON July 27, 2011 1:32 pm COMMENTS (3)

I heard emergency funds are important and should have at least 6 months of our salary which should be invested in Liquid mutual funds. These funds should be invested in liquid funds because we never know the usage of these funds upfront.

But having such a huge amount (4,00,000 – 5, 00,000) in liquid funds which even doesn’t give us 5% – 6% PA and doesn’t match the inflation rates.

Any ideas where these funds can be invested?

3 replies on this article “Does it make sense to keep huge Emergency Fund in liquid fund ?”

  1. marshaln says:

    Hi raju,
    You can go for auto sweeps facility for emergency fund. that is what am doing it with help of SBI MOD facility.
    See manish’s article on more details

  2. TheZionView says:

    @ Raju,

    Emergency Fund as the name states is for emergency and should be in most liquid possible form..

    In that case comes the Liquid MF. Liquid MF is better in terms of tax compared to Bank FD.
    Also the Liquid MF is good in market where interest rate is raising.

    In my opinion i will split the amount into 3 part.One keep it as hard cash,another in SB account and the other in liquid fund. This gives more flexibility.

  3. bharat shah says:

    you can think of bank fd for perid giving maximum interest rate connected with your saving bank account , which would give somewhat better interest , and better liquidity. one can also think , parking money in a good company’s bonds listed on stock exchange. ofcourse one should also consider the return after tax.while deciding the avenues.

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