Emergency Fund for Women: In today’s times, it is crucial for women to save money. This is because financial needs can arise suddenly during emergencies—such as expenses related to children, their needs, or unexpected bills. Therefore, setting aside some money is a prudent move for women. While people typically keep such funds in savings accounts, there is also an option to allocate a portion to liquid mutual funds for emergencies; let us explore this option in detail.
What is a liquid fund?
A liquid fund is a type of debt mutual fund. These funds generally invest in short-term money market instruments with maturities of up to 91 days. The objective is to generate returns while keeping the funds easily accessible for short-term needs. However, the returns are neither fixed nor guaranteed.
How to Utilise an Emergency Fund
Suppose a woman has monthly expenses of ₹30,000. If she wishes to build a six-month emergency fund, she could aim to set aside approximately ₹1.80 lakh. Instead of keeping the entire amount in one place, the surplus funds should be invested in a liquid fund.
This way, the money in the savings account can cover daily essential expenses, while the liquid fund can be accessed by selling units when a larger sum is required. Generally, redemption facilities for liquid funds are available on business days, and often, the money is credited to the bank account by the next business day.
Is the Money Available Instantly?
It is important to understand this aspect: the money does not necessarily reach the bank account immediately for every liquid fund. However, certain eligible investors and specific schemes do offer an instant redemption facility. There may be an instant withdrawal limit—set at either ₹50,000 or 90% of the folio value, whichever is lower—though this facility is not mandatory for every scheme.
No Guarantee of Returns Higher Than FDs
Do not choose liquid funds solely in the expectation of earning higher returns than fixed deposits (FDs). Mutual fund returns depend on market interest rates and the fund’s underlying investments, whereas, with FDs, the bank fixes the interest rate in advance.
When building an emergency fund, the primary considerations should be safety and the availability of funds when needed; one should not focus merely on higher returns. Remember that liquid funds are mutual funds and do not offer guaranteed returns. Before investing, be sure to check the scheme’s expenses, withdrawal rules, tax implications, and redemption features.