Connect with us

Finance

Building an Emergency Fund with Mutual Funds

Published

on

Building an Emergency Fund with Mutual Funds

Financial planning not only entails saving for long term goals like retirement, higher education of your children, etc but also preparing for short term goals like creating an emergency fund, to tackle unforeseen expenses. While most individuals use their current savings account as an emergency fund, owing to the ease of access to money, a disadvantage of doing so is the poor appreciation of money. However, mutual funds offer a better avenue to park savings for emergencies with high liquidity as well. Covered ahead is how to build an emergency fund with mutual funds in detail.

Why is it important to have an emergency fund?

There are many instances in life when we need emergency funds to tackle financial demands. It can be a job loss, medical emergency, car accident or breakdown, or urgent travel plan. This can be fulfilled either by borrowing money or by saving money.  A wiser move would be to plan in advance will plan to generate his emergency savings fund through savings done via investment. Investment helps to add an extra source of income for the investors.

Why select mutual funds for an emergency fund creation?

Investors can inculcate a good habit of making regular investments. Ideally, an emergency fund must have an amount six times. The conventional process of making an investment in savings banks and fixed deposit is a good idea, but the interest offered by the banks are meager. Besides, some traditional investment products will hoard the surplus amount with a fixed lock-in period on withdrawal. No investors will like to compromise on the liquidity aspect in case of an emergency fund.

Whenever an emergency scenario arises, one has to resort to availing loans or borrowing from friends and family. This is the situation that most people do not prefer to go to. If you are ready with your emergency kitty, it saves you from facing the dire consequences. Therefore, to park the surplus monetary resources, mutual funds can be regarded as the best emergency fund investment in India. It provides a lucrative option for contingency fund creation with overnight funds and liquid funds. The best emergency fund will act as a lifesaver and instill confidence in the investor by granting him the power to deal with the undesired event. Even if an individual is a frivolous spendthrift, it will ultimately develop an inclination towards savings.

Investors can consider schemes like liquid funds and overnight funds, which are debt funds and the money is invested in securities that have a maturity period of one day. Another best emergency fund investment in India is the liquid fund that is channelized towards debt and money market security and has a short-term maturity duration of just 91 days. The shorter investment period of these mutual fund schemes also keeps the investors insulated from both the interest risk and credit risk. The liquid funds earn better returns than most banks offer on a savings bank account. Alongside this, the investors have nothing to worry about the availability of funds and compromise on liquidity. The overnight funds have earned their name from the investment in overnight securities, and the liquid funds get their name from the liquidity offered in such funds. When compared to the debt funds and regular equity, it processes the redemption request more swiftly, and any request before 3:00 pm will help the investors to credit the redemption process in the registered bank account in the following working day.

What can be the ideal size of the emergency corpus with a mutual fund investment?

We have already mentioned that the ideal size of the emergency corpus needs to thrice-six times of the monthly expenditure of an individual. Some financial planners recommend that debt funds are the best emergency fund to build and manage this corpus. This allows the investor to create the corpus over a period of time. It can be gained through the routes of Systematic Investment Plan (SIP) or the lump sum investments. All you have to do is select the AMC of your choice, for instance, Kotak Mutual fund and then go through the overnight funds and liquid funds available under the selected AMC. The windfall gain will help to achieve the desired funds to create this corpus. The overnight liquid funds or ultra short-term mutual funds are indeed the ideal emergency fund India due to its liquidity aspect. Only 1-2 working days are required to process the money.

How to build an emergency fund with a mutual fund?

Investors can select from the range of mutual funds like debt funds, liquid funds and overnight funds. All these emergency funds India can be created through a regular contribution with SIP. The small quantities will create a steady savings plan over a time period and accumulate a sizeable emergency corpus. The reason behind opting for a mutual fund as an emergency fund India is the power of compounding within itself. The compounding phenomenon revolves around reinvesting the returns to generate higher return value.

A longer duration of investment means experiencing a better effect on compounding on returns.

Hence, investors need to stay focused on their financial goals for a longer time to get the rewards over the years. By this power of compounding, funds can grow exponentially and reap bigger benefits to the investment players. Generally, people make an investment in mutual funds through professional fund managers. For this purpose, they can invest in growth plans which automatically reinvest the returns. Moreover, investors can gain benefit from it if they start to invest at an early age to create a robust financial future that can even be used in contingency situations. For instance, Investors can purchase mutual funds schemes from AMCs such as UTI Mutual Fund and others that provide viable options for emergency fund creation.

It is better to select mutual funds plans like liquid funds and overnight funds. The combination of these with debts funds renders it a risk-free option. Investors can invest in these plans by making a consistent contribution with SIP over a long term to obtain benefit from compounding effect as well. The better potential returns along with liquidity the aspect, leave no doubt that these plans are undoubtedly the best avenues for the investors. In the wake of the emergency, the funds developed through mutual funds will provide the much needed monetary cushion.

Mahesh is leading digital marketing initiatives at RecentlyHeard, a NewsFeed platform that covers news from all sectors. He develops, manages, and executes digital strategies to increase online visibility, better reach target audiences, and create engaging experience across channels. With 7+ years of experience, He is skilled in search engine optimization, content marketing, social media marketing, and advertising, and analytics.

Click to comment

You must be logged in to post a comment Login

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Herbs
A - Z Health Guides3 days ago

This Powerful Herb Is Changing the Lives of Millions

question
Tech4 days ago

Five Questions to Ask before selecting an Electronic Signature Software

Home Improvement5 days ago

What Your Windows are Telling You

Glove and Mask Holder
A - Z Health Guides6 days ago

Your ideal partner in fighting Covid-19

Tech6 days ago

The Curious Case of Netflix’s Metaflow Python Framework

Best Internet for Gaming
Americas6 days ago

Top 4 Internet Providers that Deliver the Best Gaming Speeds

life7 days ago

6 Ways to Make Back-to-College Better

car7 days ago

Common Misconceptions About Car Detailing

life7 days ago

16 ‘Hot for Summer’ Solutions

Business7 days ago

Importance of Online Presence For Your Business

How can Internet Service Providers Improve Their Customer Services
How to7 days ago

How can Internet Service Providers Improve Their Customer Services?

The genre of tech horror
Entertainment7 days ago

The genre of tech horror; How dark and true is the “Black Mirror”

technology7 days ago

Q-Reel to Revolutionize Electric Vehicle Charging with World’s First At-Home Semi-Automatic Station

Fitness7 days ago

Revolutionary Performance-Enhancing, Psychology-Driven Activewear Line Redefining Wearable Technology

Travel7 days ago

Nation’s Largest Ghost Tour ‘Nightly Spirits’ Helping Resurrect Local Restaurant Scenes

General news7 days ago

Tổng quan ngắn gọn về cá cược nhà cái

marriage
Finance7 days ago

All you want to know about necessary requirements for Marriage Loans

Americas1 week ago

All you need to know about Last Will and Testament in Alaska

seositecheckup
Business1 week ago

Your Business Needs to Work With The Top Agencies in Chicago

photography college 
News1 week ago

How to Choose a Holiday Photo Card

finance
Finance2 weeks ago

Questions to Ask Before You Take Out a Loan

home equipment
Fitness2 weeks ago

How to Train at Home during the Quarantine: Tips & Trick

What Is Vocational Adjustment & How Does It Affect My SSD Claim?
News2 weeks ago

What Is Vocational Adjustment & How Does It Affect My SSD Claim?

Fake News Regarding COVID-19
News2 weeks ago

Stop Kids from Getting Exposed To Fake News Regarding COVID-19

streaming
Entertainment2 weeks ago

How to Enjoy Online Streaming For Free While Quarantine?

How to Choose Watches for Women
Fashion2 weeks ago

How to Choose Watches for Women

How to Dig a Trench for a Sewer Line Replacement
Home Improvement2 weeks ago

How to Dig a Trench for a Sewer Line Replacement

How to Replace an Evaporator Coil
Home Improvement2 weeks ago

How to Replace an Evaporator Coil

Water Damage Restoration Steps
Home Improvement2 weeks ago

Water Damage Restoration Steps

How to Protect Your SD Card and Decrypt SD Card
Tech2 weeks ago

How to Protect Your SD Card and Decrypt SD Card

The genre of tech horror
Entertainment7 days ago

The genre of tech horror; How dark and true is the “Black Mirror”

Magento eCommerce Development
Business4 weeks ago

How to optimize your eCommerce Website for More Product Sales during the Covid-19 Pandemic?

Breaking Down Business Software
Business4 weeks ago

Breaking Down Business Software: What Is Microsoft 365?

Depression
A - Z Health Guides4 weeks ago

Coronavirus Lockdown may lead to increase in Depression and other Mental Health Problems

New Orleans Educators Share How Teach to One Helps Save Students From the Iceberg Problem
News3 weeks ago

New Orleans Educators Share How Teach to One Helps Save Students From the Iceberg Problem

computer security
Tech3 weeks ago

The Updated Computer Security Guide for 2020

nps
Insurance4 weeks ago

What is NPS Scheme and benefits?

3 Simple Credit Tips for When Cash is No Longer King
Finance4 weeks ago

3 Simple Credit Tips for When Cash is No Longer King

baby
Parenting4 weeks ago

Add Style To Your Kid’s Wardrobe With The Best-selling Baby Boy Clothes

Scoping Your Options
Facts4 weeks ago

Scoping Your Options: How To Choose The Right Scope For Your Gun

mutual funds
Marketing4 weeks ago

4 ways to calculate returns on SIP of mutual funds

Things To Consider While Choosing A Kitchen Backsplash
Home Improvement4 weeks ago

Things To Consider While Choosing A Kitchen Backsplash

AYUSH Health Insurance
Insurance3 weeks ago

All You Should Know About AYUSH Health Insurance

rehab
A - Z Health Guides3 weeks ago

Drug Addiction Treatment for married Couples find hope in Couples Rehabs

Baking Pandoro Cake With Utmost Perfection in Italian Style
Food4 weeks ago

Baking Pandoro Cake With Utmost Perfection in Italian Style

tarot
Education3 weeks ago

An Expert Explains how to do a Tarot Reading

online gaming
Sports3 weeks ago

Gaming Online in the US: How and Where

How to Protect Your SD Card and Decrypt SD Card
Tech2 weeks ago

How to Protect Your SD Card and Decrypt SD Card

Fake News Regarding COVID-19
News2 weeks ago

Stop Kids from Getting Exposed To Fake News Regarding COVID-19

Online Learning
Education3 weeks ago

E-Learning Not the Same as Learning

What Is Vocational Adjustment & How Does It Affect My SSD Claim?
News2 weeks ago

What Is Vocational Adjustment & How Does It Affect My SSD Claim?

las vegas
Celebrities2 weeks ago

The Long History of Celebrity Car Wrecks in Las Vegas

How to Replace an Evaporator Coil
Home Improvement2 weeks ago

How to Replace an Evaporator Coil

streaming
Entertainment2 weeks ago

How to Enjoy Online Streaming For Free While Quarantine?

children
children2 weeks ago

Why Your Kids Need Special Hair Products

How to Dig a Trench for a Sewer Line Replacement
Home Improvement2 weeks ago

How to Dig a Trench for a Sewer Line Replacement

home equipment
Fitness2 weeks ago

How to Train at Home during the Quarantine: Tips & Trick

How to Choose Watches for Women
Fashion2 weeks ago

How to Choose Watches for Women

finance
Finance2 weeks ago

Questions to Ask Before You Take Out a Loan

Water Damage Restoration Steps
Home Improvement2 weeks ago

Water Damage Restoration Steps

Trending