POSTED BY September 20, 2013 1:27 pm COMMENTS (3)ON
Over the last year, i managed to save my Emergency fund. The purpose of this fund is
1. Emergency Medical expenses (which will be recovered from Medical insurance, but still has to be paid to the hospital upfront)
2. Unemployment fund.( 6 times my monthly expenses)
However, now it is rotting in my savings bank account. Is this the correct way to store the emergency fund? I guess not. So please suggest some good investment options for this savings. My requirements are very low risks and very high liquidity.
Short term FDs , < 1year (low risk, but not liquid)
Mutual funds that invest in Debt (little risky)
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3 replies on this article “Where do i store my emergency fund?”
Thanks Manasi and Ashal for your suggestions.
I will start my research on
1. Sweeping FD
2. Short term liquid funds.
Dear Abhishek, if all the money is rotting in your SB account, please convert your SB account into Sweeping FD account. Just google a bit for sweeping FD and you ‘ll come to know that it ‘ll solve a lot of your problems. To keep the matter simple, I’m not offering liquid funds or short term debt funds. if you are OK with these, you may invest 50% amount into a liquid fund also.
First of, Congratulations on assimilating your Emergency funds…
As you have already sorted your funds into two, you may opt to invest your emergency funds as under:
Medical Emergency Funds – Considering that we would never be able to get a heads -up on this expense, you must save this fund in a bank FDR. I suggest bank FDRs because – 1) Banks work 6 days in a week, so you can access these funds most easliy at any point at your convinience. Some banks even provide the option of closing FDR & Transfer to SB accounts through Internet Banking.
2) Some banks allow you to opt for Loan against FDR wherein your FDR is safe and you pay interest (1% more than FDR Rate) only for the amout you withdraw. For eg. If you have an FDR of Rs.1,00,000/- at 10% interest then you can avail a loan of upto Rs.90,000/- If during an emergency you spend Rs.50,000/- then you pay 11% interest( 10%+1%) PA only. You also continue to earn iterest on the remaining Rs.50,000/- and you dont have to go through the hassle of breaking your FDR.
For your Emergency Unemployment Fund – Considering that you may have a slight idea about getting a pink slip (based on the overall scenario in the industry and in your office) you may opt to invest this fund in Liquid funds or Bonds. This is so that you have atlease a week’s notice to time the market and withdraw your funds on the most profitable moment. Reasons to invest in open ended liquid funds/bonds –
1) Withdrawal is very simple, you can get your fund out in 24 hrs.
2) Provides better returns than Bank deposits.
Hope I answered your question. Wishing you luck.