Where to invest Emergency Fund

POSTED BY H M ON May 15, 2013 7:25 pm COMMENTS (6)

Hello Friends,

I am on my way to create an emergency fund & will need to keep aside around 4.25 lakhs looking at my current expenses + home loan EMI for 6 months. I am going to create this fund from my current savings & some one time benefit i am expecting to come in during next 2-3 months.

To make this tax efficient & easily accesible I am planning to invest around Rs. 1.5 lakhs in FDs & the rest in liquid funds or ultra short term debt funds.

Questions on the above strategy:

1) Is FD + MFs a good combination to go with??

2) If i choose a liquid fund what option should I go with to make the returns tax efficient?? Growth, Dividend Payout or Dividend Reinvestment?? I will be doing this investment directly from the MF websites & my overall tax %age is close to 25-30% of my yearly salary.

3) Are ultra short term funds good for emergency fund?? I read this in a article somewhere yesterday but am not clear if these funds are a good choice for Emergency Fund.

Once the above is clear I will get down to choosing the products that fit my criteria. Usually i refer Value Research & go with 5 star funds which have been around for > 5 years + of known fund houses like HDFC, ICICI etc.

Thanks in advance for helping out.

Best,

HM

 

6 replies on this article “Where to invest Emergency Fund”

  1. H M says:

    Hi Ashal, Hi Bharat,

    I have now got the funds to go ahead with emergency fund creation & was checking FT Online site for Templeton Low Duration fund.

    Should i choose dividend reinvestment since it is tax efficient as per the below link or growth option?

    http://www.fundsindia.com/blog/mutual-funds/liquid-funds-invest/751

    Since it is an emergency fund the holding period can be for less than a year.

    Thanks,
    HM

  2. H M says:

    Thanks Bharat, thanks Ashal

    Will post again after I have selected the fund for advice

  3. Dear H M, Please opt low duration fund from Franklin India.

    Thanks

    Ashal

  4. bharat shah says:

    franklin templeton AMC has good no. of debt fund of all shorts.

  5. H M says:

    Thanks Ashal,

    Right now I have online access for IDFC, Franklin Templeton and Quantum hence the liquid fund chosen will be from one of these.

    Also can you please help with the 3rd query of ultra short term funds as an option to park emergency fund.

  6. Dear Dev, I’m trying to answer your queries.

    1) Is FD + MFs a good combination to go with??
    Yes.

    2) If i choose a liquid fund what option should I go with to make the returns tax efficient?? Growth, Dividend Payout or Dividend Reinvestment?? I will be doing this investment directly from the MF websites & my overall tax %age is close to 25-30% of my yearly salary.
    Growth option as you w’d have to pay tax only if you redeem money as per your need. No redemption, no tax. As simple as that.

    3) Are ultra short term funds good for emergency fund?? I read this in a article somewhere yesterday but am not clear if these funds are a good choice for Emergency Fund.
    Once the above is clear I will get down to choosing the products that fit my criteria. Usually i refer Value Research & go with 5 star funds which have been around for > 5 years + of known fund houses like HDFC, ICICI etc.
    Please do tell us about your existing Eq. MFs. Please chose a liquid fund from the same AMC where you are already having direct investing facility into Eq. MF.

    In case you are investing in Quantum Long Term Eq. fund, please opt Quantum Liquid fund for your emergency fund parking.

    Thanks

    Ashal

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