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Part - IV
Income Funds
Some planners suggest short-term income funds. "They provide returns that are 65-70 basis points higher than those from the liquid funds," says Jain.
But these funds are too risky as they invest in income securities & are set to mature soon.
"Short-Term Liquid Funds will provide slightly higher returns, but in absolute terms it will be small, say Rs 500-600. This isn't justifiable when viewed with the backdrop of increased risks. EF need to be safe & liquid," says Mashruwala.
Building the Funds
Most of us vaguely say that some portion of our savings is earmarked as Emergencies. But there is a real danger of spending all your money, leaving very little for emergencies.
It is important to start slashing away some money in a separate account. As you build reserves worth one or two months expenses, consider investing in bank FDs linked to savings accounts. As you build up progresses, diversify into liquid funds.
Review Your Requirements
Like all financial requirements, your EF needs may change. So, review your requirements regularly, especially when you take a loan, insure new assets, increase your insurance cover or see a significant change in income.
Insuring your life, health & assets & building an adequate Ef are 1st two steps of financial planning.
Sadly, few people realize the importance of EF till it's too late. Financial Planners identify lethargy as the main culprit.
Just remember a lot of misery can be avoided by sparing a little time to create a financial shield against emergencies.
Concluded.
* Contributed by -
Prashant Jadhav,
2nd Year PGeMBA (Finance),
Mumbai Educational Trust (MET) Schools of Management, Mumbai.
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