Liquid Fund required to park my Emergency Fund

POSTED BY sunil ON June 6, 2012 2:33 pm COMMENTS (6)

Dear All,

I have emergency fund now parked in my SBI FD account (auto sweep account giving 8% interest).
Should i consider moving those fundss into any Liquid Funds as the Gains from FD are taxable?

If YES, should i keep it in only one Liquid Fund or should i divide it into 2

6 replies on this article “Liquid Fund required to park my Emergency Fund”

  1. sunil says:

    That’s a good idea dear Ashal,
    I shall implement it.

    Thanks for your suggestion.

  2. sunil says:

    Dear Ashal,
    I am in 30% Tax slab…
    And i wanted to move my entire Emergency Fund into Liquid Fund… I feel its a wise decision (not sure though)…

    1. Dear Sunil, on the one hand you are creating emergency funds for the very basic purpose of emergency & at the same time you are locking all your emergency funds into Liquid funds to earn some extra returns. Do not be greedy.

      My take invest only 50-60% of emergency funds into debt funds. Rest amount should be in SB account having sweeping FD facility. Although the return ‘ll be lower on FDs due to tax impact but earning high return is not your basic aim for this emergency fund. Alternatively you may park your money in SB accounts in the banks where SB rate is around 6%. After the budget 2012, now you can earn tax free interest of 10K from your SB account so you may keep around 1.35L Rs. in SB account offering 6% return.

      Thanks

      Ashal

  3. sunil says:

    Thanks Renu, i shall go through the mentioned links before acting.

    1. Dear Sunil, May I know your Tax slab please? Also from your query it’s not clear that you are moving full emergency fund or a part of it into Liquid Funds. Please clarify this also.

      Thanks

      Ashal

  4. Renu Chauhan says:

    Dear Sunil,

    It would be a good Idea to switch your emergency fund to either a Liquid Fund or an Ultra short term Fund. Decision to invest in 1 fund or 2 should be completely yours. I personally would invest in only 1.
    What you may do is – compare the returns for 1Wk, 1M, 3M, 6M and 1yr and select the fund to invest in (as this investment would be for a short term period). Also do keep a check on the exit load (if any). Most important do go through the factsheet and understand the credit rating of the papers the fund manager is going to invest in. generally higher returns can mean a little more credit risk.

    To understand these funds you may find these links useful

    http://localhost/jagoforum2/money-market-funds/3611/

    http://www.fundsupermart.co.in/main/research/article-Liquid-Funds–A-simpleton-that-we-conveniently-ignore-at-our-cost–647.html

    http://www.fundsupermart.co.in/main/research/article-Answer-to-Intermediate-Investing–Ultra-Short-Term-Funds-608.html

    Regards,
    Renu

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