Dear Friends
AN EMERGENCY CORPUS CREATED BY INVESTING IN MUTUAL FUND PLANS WILL COME TO YOUR
RESCUE SHOULD SOMETHING UNTOWARDS HAPPEN
In the world of medicines, different pills with varying formulations and
combinations cater to specific ailments. No single drug is a panacea for all
diseases. Likewise, when it comes to Mutual Funds there are schemes designed to
facilitate the achievement of a particular objective - whether it is saving for
long term goals such as childrens education and your own retirement or saving
for the downpayments for buying a house in a few years. Now just this, MF
Schemes can also be used as a tool for emergency funding. Here we take a look
at how these schemes can help one tide over a financial crisis.
EMERGENCY EVENTS :
Any emergency is marked by two important characteristics : one, it is an event
that is not predictable and, two, it required immediate action. Suffering, a
temporary physical disability or getting a pink slip is an example. At such
time one needs liquid money. Digging into long term savings may not be the best
option as one usually links each investments to a specific goal. Lets look at
which kind of MF schemes can help u save funds for emergency needs.
CHOOSING THE RIGHT FUND :
An emergency fund has to be liquid (Easily and readilyconvertible to cash). So,
liquid MFs which invest in Debt instruments such as treasury bills, commercial
paper and the call money market, and have short maturities are ideal for this
purpose. Return from a liquid funds are usually stable and less volatile. Its
objective is to preserve principal give moderate returns and still offer high
liquidity. There are two reasons why liquid funds are appropriate for emergency
funding. One, the zero exposure to volatile assets, such as equities, keeps
return stable. Two, you can get your funds back within one working day after
making a request for redemption. And that is what matters most during cash
emergencies. An equity fund, or for that matter, the stock market is not the
right place to park your emergency money.
Dull market conditions or low values of your MF Schemes may put your objective
in jeopardy.
THE RIGHT CORPUS SIZE :
Theres no rule as to how much emergency funds one should stack up. As a thumb
rule, 3 - 6 months household expenses are sufficient, though it varies as per
to age. Roughly stating, it is the amount that gives you the confidence to
combat emergencies in your household. If you have created an emergency corpus
that exceeds this by a great margin, it can adversely impact your investment
portfolio.
Those in their 20s and 30s might need more for emergencies - they should aim at
creating an emergency fund for about six months of expenses. Those nearing
retirement might not need as much as they would have reserves. How much you
finally save for the emergency fund depends ultimately on what makes you feel
comfortable. If you are riskaverse you will prefer a large fund of, say a years
salary, if you are open to risk, 3 - 6 months salary would do.
FUNDING :
You do not need to starve yourself to create an emergency fund. Regular
contributions are the key. For instance, if you save 10 percent of your monthly
salary of say Rs.50,000/- in five years you accumulate more than Rs.3lacs.
That should be enough to see you thru a bad patch. Ofcourse, the fund would be
in addition to other safeguards - insurance policies, for instance, that
usually come good over a period of prolonged crisis.
CONCLUSION :
Clearly, a little bit of financial planning can minimise the running from
pillar to post that one has to do in case of an emergency. With an emergency
corpus created by investing in liquid funds you might never even feel the
stress that comes with an untoward incident. These funds, with their good post
tax returns and ease of transaction, are a good bet for cash management during
emergencies.
ARTICLE COURTESY BY HSBC MUTUAL FUND
With Best Regards
SHENOY INVESTMENT AND FINANCIAL
CONSULTANTS PRIVATE LIMITED
11-A, KASHI NIKETAN, 2ND ROAD,
CHEMBUR, MUMBAI - 400 071
TEL : 6797 3433 / 2521 2111
EMAIL : shifc...@gmail.com
shifc...@mtnl.net.in
Dealing in Mutual Funds, General & Life Insurance Products, Post Office
Schemes, Fixed Deposits, I.P.Os., and Capital Gains Bonds
--
You received this message because you are subscribed to the Google Groups
"BETTER PERSONALITY GROUP" group.
To post to this group, send email to better_personality@googlegroups.com.
To unsubscribe from this group, send email to
better_personality+unsubscr...@googlegroups.com.
For more options, visit this group at
http://groups.google.com/group/better_personality?hl=en.
