Skip to main content

Contingency Funds

 
Emergency Funds


Contingency Funds are important to help you tide over unexpected expenses. Find out how big a contingency should you have and where to keep that amount.
 
In today's uncertain job market, a lay-off can lead to sever al months of unemployment.

A serious illness or disability due to illness or accident can also hamper one's ability to earn for a prolonged period. When life throws nasty financial surprises your way, have a Plan B ready. An adequate emergency fund can help you tide over the crisis.

To a great extent, credit cards have done away with the need to have emergency funds. You can use them to tide over the emergency till you are able to arrange funds. But credit cards should not be seen as a replacement for setting up an emergency fund.

Financial planners usually suggest keeping aside six month worth of expenses for emergencies. However, this thumb rule varies according to individual circumstances. If you have health insurance, you won't need a contingency fund during a medical emergency. If it is cashless, you may not have to shell out even a rupee. However, be prepared for situations where you or a family member might not need hospitalisation, but will require money for doctor visits, therapies, tests and medicines.

The size of the contingency fund will also depend on how secure your job is and how many earning members are there in a family. You also need to take into account EMIs and insurance premiums that need to be serviced regularly. Households that are paying huge EMIs experience considerable financial stress when income reduces. Their emergency fund has to be that much bigger. An emergency fund goes a long way in servicing debt while alternatives like restructuring the outstanding loan is being worked out.

Where do you keep it?

After you figure out how big a kitty you need, you need to choose an appropriate investment option for the fund. Remember, returns are not important here. What is more critical is that the money should be easily accessible at short notice. Financial planner Malhar Majumder suggests parking at least 25% of the emergency fund in a savings bank account. You can withdraw it 24x7 (see box). Ensure you have a debit card with adequate cash withdrawal limit. Many people remain unaware of their debit card's daily cash withdrawal limit (usually `40,000) till the time they attempt to withdraw huge amounts during an emergency.

But savings bank accounts give very low interest of 4% on the balance. A better idea is to go for a sweep-in account where excess funds are automatically transferred into a fixed deposit and earn higher returns of 7-8%. When you withdraw, the money is paid by breaking the fixed deposit. If your bank does not have a sweep-in facility, you can put the money in a fixed deposit that can be broken anytime.

The other reasonably comfortable option is to park your cash in liquid funds. The money will earn a decent return and can be withdrawn at any time.Liquid funds have returned 8.24% over the last one year and ultrashort-term funds have returned 8.52% during the same period. Re demption takes a day. Some fund houses, like Reliance Mutual Fund, offer liquid funds that come with ATM cards so the investor can withdraw the money directly without the redemption first going to his bank account.

 

A contingency kitty once formed is not the end of the process of providing for a rainy day. You need to revisit the fund and replenish it regularly to adjust for inflation, lifestyle changes, increase in family members and changes in debt commitments. The kitty should be reviewed at least once a year.

Best Tax Saver Mutual Funds 2016 or ELSS Mutual Funds for 2016

 

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. IDFC Tax Advantage (ELSS) Fund

4. ICICI Prudential Long Term Equity Fund

5. Religare Tax Plan

6. Franklin India TaxShield

7. DSP BlackRock Tax Saver Fund

8. Birla Sun Life Tax Relief 96

9. Reliance Tax Saver (ELSS) Fund

10. HDFC TaxSaver

Invest Rs 1,50,000 and Save Tax under Section 80C. Get Good Returns by Investing in ELSS Mutual Funds Online

Invest in Tax Saver Mutual Funds Online

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

Popular posts from this blog

Post Office Deposits Interest Rates

Best SIP Funds to Invest Online   SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich For further information on Top SIP Mutual Funds contact  Save Tax Get Rich on 94 8300 8300 OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com

Modern day balanced mutual fund approach

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)   In reality, most balanced funds have a strong tilt towards equity instead of a mix of equity and debt THERE are various types of mutual funds available to investors with specific features. Often investors have a particular idea about a specific type of funds in terms of their features and risks, but that is not what is actually available. Therefore, it is necessary for an investor to understand the actual position before picking up a fund. This requires some work on the part of the investor. One example can be the situation with balanced funds. Name is not representative: One of the first things that an investor has to understand is that the name of the fund is often not representative of its investment pattern. The name often represents only the aim of the fund, and not what it actually is.

How Tax Deducted at Source (TDS) works?

    THE tax season is here. And if you are an employee you can't blame your employer for deducting large chunks of money from your salary towards tax deducted at source ( TDS ), which he is legally obliged to do. Your bank will also deduct some percentage from your FD interest of Rs 10,000 or more towards TDS! So what is this TDS all about? How is it computed? Are there any changes this year? Read on... What is TDS? TDS reduces your taxable income and could even provide tax relief! The TDS collections account for 40 percent of the total taxes collected in the country. As the name suggests TDS is the amount of tax that is deducted at source in certain types of income . The TDS thus collected is deposited in the Government treasury within a specified time. How is it computed? Some of the types of income where TDS is applicable include salary, interest, rental fee, interest on securities, insurance commission, dividends from shares and UTI/Mutual Funds, commission and brokerage

Investment Strategy for Low Risk Investors

    Invest in Best Debt Funds Online   These financial strategies can help optimise the returns from safe investments   There are many reasons why investors prefer to be safe than sorry. Some of them can't stom ach the volatility that comes with stock investments. Others may have had a bad experience, which is why they want to stay away . The risk profile of an individual is determined by a combination of factors (see chart). Based on the factors that determine risk appetite, we have developed a risk tolerance test (see below). If your score puts you in the low-risk segment, here are some tips for you to optimise your returns. GO FOR TAX EFFICIENT INVESTMENTS Bank deposits are all-time favourites of those seeking low-risk instruments.They are easy to understand, widely available and anyone with a bank account can open one. Thanks to Netbanking, they also do not require paperwork. But bank deposits are tax inefficient because the interest earned is added to your income and taxed

What is price deflator?

What is price deflator? A defaltor is used to restate data measured over time to prices prevailing at a particular period or time to make it comparable. Essentially, a deflator removes the effect of inflation from the data. What is the role of price deflator in GDP calculations? Prices are continuously in a state of flux, but generally trend upwards over time. Therefore, even without an increase in the quantity of goods and services produced by an economy, price increase can give the impression of an increase in the gross domestic product, or GDP, the benchmark indicator of economic activity. Therefore, the impact of prices has to be removed at arrive at a true measure of the value of goods and services produced, or real economic growth. A deflator is used to reduce output estimates at current prices to what they would be if calculated with reference to prices in a particular year. Why is GDP deflator considered a good measure of inflation? The ratio between the GDP at current p
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