Liquid funds for indefinite period- advisable?

POSTED BY Kuntal ON July 30, 2013 7:05 pm COMMENTS (6)

Hi all,

   Having build my Equity mutual fund portfolio, I wish to invest in a liquid fund, which would serve 2 purposes:

1. As emergency fund (around 6 times monthly expenditure).

2. A pool for rebalacing with Equity funds (every 1-2 years).

My question is: Is it advisable to invest in liquid funds for indefinite period, as I dont know when I may require emergency funds. I know that other debt funds can give bit higher returns (albeit with higher risk), but I would like only one fund fron debt mf category.

Please advice.

Thanks,

Kuntal.

6 replies on this article “Liquid funds for indefinite period- advisable?”

  1. Kuntal says:

    @ FFC,
    Got it, thanks.
    I will put money in liquid fund, only after I exhaust my 10000 tax-free interest (as suggested by you in another post). For rebalancing, thinking of HDFC short-term opportunities (also suggested by you in another post, also relatively less average maturity, so less risky).
    Is my thought process in right direction?
    Awaiting yor reply,
    Kuntal.

  2. Kuntal says:

    @ FFC,
    I do a RD every year, maturing in March, maturity amount goes to PPF by 5th April.
    Can Liquid fund be used for the same purpose, instead of RD (for 20% tax bracket)?
    Thanks,
    Kuntal.

    1. why not simply invest each month in ppf instead of the rd? saves you the tax headache. how much more will you invest this way or with a liquid fund?

      sounds like too much trouble for something simple.

  3. YES for emergencies.

    NO for rebalancing. what you have in mind is simply profit booking not rebalancing. liquid fund performance will not depend too much on market and interest rate factors. So there will no need to take some money OUT of the liquid fund. That is what rebalancing means.

    Use an income debt fund for a long term goal along with equity and rebalance with it.

    1. Kuntal says:

      @ FFC,
      Thanks for your response. So your suggestion is to have a liquid fund for emergency, and an income fund for periodic rebalancing with equity.
      I had another query:
      Presently I have a RD of 12 month duration, maturing in March every year, the maturity amount gets credited to my PPF account by 5th April every year. Can a SIP of 12 months duration be done in liquid fund for the above purpose, instead of RD? Or maybe a lumpsum every year in March? (I fall in 20% tax bracket).

      Thanks,
      Kuntal.

      1. as a matter of technicality a sip of 12 months or more or less can be done. However if you give more background on why you want to do this, it will help

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