Profits through Liquid Funds

POSTED BY Anand ON January 31, 2013 3:29 pm COMMENTS (8)

Hi, 

When I should redeem units a liquid fund, set aside as Contingency fund, if no such need arises?

Like is it worth to redeem after one year, to realise profits and again invest (may be original amount) in same fund?

Consider 8% returns on 10,000, so after one year,it will be 10800 , so should I redeem Rs : 800?

What do you suggest?

8 replies on this article “Profits through Liquid Funds”

  1. Pushkar Sapre says:

    OK. thanks All.
    @Ashal Jauhari : yes I had asked wrt Learning purpose, by checking best and worst periods of liquid funds from ValueResearch website , and I later found a similar question :

    http://localhost/jagoforum2/when-you-do-you-exit-a-well-performing-mutual-fund/3779/

    At present , I am working on selecting a mediClaim policy, and in contact with MediManage people for their opinion.

    After that , I will go with Critical health and Accidental policies( is it same as Permanent Disablement Policy ? ) , as it will affect me even I don’t have any dependants.

    And then a Contingency fund and a Term Insurance.

    Also I would like to ask, are balanced funds like HDFC Prudence / balanced ( since they are equity oriented) are good for short termed goals of 3 years ?
    Or I just put 20-25% in short term debt fund and remaining 70 % in bank RD and then Convert to FD?

  2. Dear Pushkar, ‘ll you purchase your umbrella well before rain starts or ‘ll shop for the same when it’s raining heavily?

    I’m agree with dear Ramesh here that no liabilities are associated with you so you should not purchase a term cover at all but health cover & accident covers are in a different league of their own.

    Regarding contingency fund – when you do not have any, why are you worried for profit booking? If you are asking for learning purpose, my dear friend, contingency fund is also a mathematical number based upon our income & expenses. Now as the inputs (income & expenses) ‘ll change after 1-2-3 years, so ‘ll the outcome i.e. contingency fund. Should I add more?

    Thanks

    Ashal

  3. Pushkar Sapre says:

    OK. Thanks.

    My intention of asking the question was just that,

    Sometimes Liquid Funds give very low or -ve returns, it may even correct itself over the time,

    But is it safe , just to keep money in liquid fund or we should redeem and utilise it. ?

    Also I am single right now , and parents are not dependent on me, So is it worth to purchase Term Plan right now or after some year ? For the same reason, I am not yet having a Contingency fund? And should I consider a Critical Illness and Accident Cover as a rider or in separate new policy?

    I think I should purchase term plan right now, as the amount of premium will be less.

    Please advice.

    1. Ramesh says:

      No financial dependents, no term insurance required. period.

      When you have those, then do that otherwise not.

    2. If you intend to get married later on it is best to get term insurance right away and not wait until you get married. Younger you are, healthier you are (usually!) and lower the premium.

      Get the contingency asap along with the term plan.
      Have adequate health insurance also even if provided by employer.
      Then go for critical illness cover and accident insurance separately and not as riders. The last two are crucial if you there a chance you will loose income in case if critical illness and accident.

      You could use this to find the life insurance amt:

      http://freefincal.wordpress.com/insurance-calculator-for-the-young/

  4. If by surplus you mean the money left over after all expenses (incl premium for pure term insurance, health insurance etc.) and investments for all short term goals and long term goals (like retirement etc.) and if you have have up at least 6-12 months of expenses as contingency amt,

    then and only then, you can do whatever you want!

    Please do not link your contingency fund with other investments. If you have liquid funds and FDs please associate them with goals. If you have excess money (more than 12 months expenses) then invest it right away for specific goals.

    Forget about your contingency fund. Let it grow until you have a contingency! Never underestimate a contingency.

  5. A contingency fund is for contingencies. One doesn’t use it for anything else. So what if one has a perfect life with no contingencies? Great! You write a will stating who will get the contingency fund after your death!

    What to do with profits? Contingencies are also subject to inflation. So the profits would take care of that. Usually contingencies need to be supplemented periodically for most people. If in your case the profits are large enough you don’t have to supplement it.

    Please don’t waste time computing profits for the contingency fund. In fact its bad luck to even think “I have not touched my contingency for some time”!

    1. Pushkar Sapre says:

      OK. I was just using a example as Contingency Fund.

      Consider, each month I have surplus of 6000, and out of that I transfer 3000 to liquid fund(growth) for better returns.

      Now if any need arises then I will first use Saving account and then Liquid Fund.

      In this case I have following question:

      1) Should I redeem Liquid fund units, suppose after one year, if it has given good returns of around 8.5 % – 9%, even though I am not in need of money? As I have seen funds, have given max return on time frame of one year. And this redeemed money can be used to invest in EQ or Long Term Debt OR FD etc?

      2) OR let it just continue, untill I am need of money?

      I am just asking with respect to traditional instruments. Like in FD, we get maturity amount, and we may continue with principal + interest or just interest.

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