Skip to main content

Create a contingency fund in your portfolio

WHAT will you do if you need 50,000 for some emergency expense? Liquidate your FD or sell some units of your mutual fund. But it requires a certain process, which may take time. Even a credit card swipe may require you to pay next month which will create a dent on your savings. Ideally, any last minute need should be met by a contingency fund.


   If you are a salaried individual your contingency fund should be equal to four to six months of your expenses. For example; if your monthly expenses work out to 15,000, ensure you have access to liquid cash of 60,000-90,000 at any point of time. For a self employed individual this number would increase to 1,20,000 as the cash flow is uncertain. Within the self employed individuals there are professions like acting in which the variability of income is very high. They should provide for a minimum of one year. Ideally you should lock in your excess cash in an instrument which comes with an easy exit clause.

   If the size of the contingency fund is less than 1 lakh, look at a savings bank account. Although you earn only 3.5% compared to 10% on fixed deposits the interest income differential is not very high. Also, the excess cash is accessible.

   If your contingency fund is 1 lakh-5 lakh you can look at sweep in accounts. These accounts are an amalgamation of the features of a savings-current account and a fixed-deposit account.

   If your contingency fund is over 5 lakh, then you can look at liquid or liquid-plus funds. Liquid funds invest in low risk instruments like money market funds. Most funds have a lock in period of a maximum of three days to protect against and are redeemable within 24 hours. But the dividend distribution tax (DDT) is 27% (including the surcharge). Liquid plus funds come with lower DDT at 15% but the lock in period is almost a week. But for HNIs who park a lump sum money, this difference in DDT matters. If you are yet to build one, ensure that you have liquidity surplus of at least two months. Then you can gradually step up to build the kitty.

 

Popular posts from this blog

Mirae Asset Healthcare Fund

Best SIP Funds to Invest Online   Mirae Asset Global Investments (India) has launched Mirae Asset Healthcare Fund. The NFO of the fund will be open from June 11, 2018 to June 25, 2018. Mirae Asset Healthcare Fund is an open-ended equity scheme investing in healthcare and allied sectors. The scheme will invest in Indian equities and equity related securities of companies that are likely to benefit either directly or indirectly from healthcare and allied sectors. The investment strategy of this scheme aims to maintain a concentrated portfolio of 30-40 stocks. Healthcare is a broad secular theme that includes pharma, hospitals, diagnostics, insurance and other allied sectors. The fund will have the flexibility to invest across markets capitalization and style in selecting investment opportunities within this theme. Neelesh Surana and Vrijesh Kasera will manage this fund. In a press release, Swarup Mohanty, CEO, Mirae Asset Global Inves...

How to Decide your asset allocation with Mutual Funds?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) How to Decide your asset allocation ? The funds that base their equity allocation on market valuation have given stable returns in the past. Pick these if you are a buy-and-forget investor. Small investors are often victims of greed and fear. When markets are rising, greed makes the small investor increase his exposure to stocks. And when stocks crash to low levels, fear makes him redeem his investments. But there are a few funds that avoid this risk by continuously changing the asset mix of their portfolios. Their allocation to equity is not based on the fund manager's outlook for the market, but on its valuations. Our top pick is the Franklin Templeton Dynamic PE Ratio Fund, a fund of funds that divides its corpus between two schemes from the same fund house-the...

NFO Review: Edelweiss Select Midcap Fund

      Edelweiss Mutual Fund has announced the launch of another equity fund after a gap of nearly two years. This fund will be focused on mid cap stocks.   Investment Strategy The primary investment objective of the scheme is to generate long term capital appreciation from a portfolio predominantly comprising of equity and equity related securities of mid cap companies. The scheme may invest upto 100% in equity and equity related securities of companies falling in top 101 to 300 companies by market capitalization. However, it may also invest upto 20% in other listed companies as well as in debt and money market instruments.   Fund Manager Mr. Paul Parampreet and Mr. Nandik Mallik will co-manage the scheme. Mr. Paul Parampreet has done PGDM (IIM – Calcutta) and B.Tech (IIT-Kharagpur). With overall experience of 6 years, he has worked with Edelweiss Securities Ltd. SDG India Pvt. Ltd. ICICI Bank and BG India Pvt. Ltd. Mr. Nandik Malik has done MS-Finance (London Business Schoo...

Different types Joint Savings Bank Account

A joint savings account comes with operating options such as either or survivor, anyone or survivor, former or survivor and latter or survivor Are you looking to open a joint savings account with your spouse, parents, siblings or children? All banks that offer savings accounts, allow you to open a joint account. According to the Reserve Bank of India (RBI), there is no restriction on the number of account holders who can jointly share one account. However, there are banks that restrict the number of joint account holders to four. Further, the way you operate the joint savings account depends on the agreement that you have signed with the bank. Different types of joint accounts A joint savings account comes with operating options such as either or survivor, anyone or survivor, former or survivor and latter or survivor. These terms decide how you can operate the account and what happens to the money in case of death of an account holder. Either or survivor:   If you select this option, ...

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now