What's the best way to park emergency funds?? Auto sweep or liquid funds or any other??

[Avatar Aang]

So here's the background. I got a job in 2018. Married in 2021. But as of today I don't have any emergency funds (whenever I had some 4-5L I gave it to my family as and when needed.)
Now this year my wife also got a job and we can easily create an emergency funds of 5L in the next three months.
I was thinking to use the auto sweep FD to park the funds. Which bank has the best auto sweep rates and TnC?
Are there any better ways to park the emergency funds?

 

[real_name_hidden]

Auto sweep fds intrest rate are similar to your regular fd.

You can keep 2-3 months of expenses in Sweep fds for better accessibility and rest in debt funds.

You pay tax every year (or quarter in some case) on FD for unrealized gains, MF gains tax is only over realized gains (when you sell) - so slightly higher return in debt mf.

 

[prankster]

Consider liquid funds or money market funds or split between the two.

 

[Avatar Aang]

Auto sweep fds intrest rate are similar to your regular fd.

You can keep 2-3 months of expenses in Sweep fds for better accessibility and rest in debt funds.

You pay tax every year (or quarter in some case) on FD for unrealized gains, MF gains tax is only over realized gains (when you sell) - so slightly higher return in debt mf.

Thanks for the input. Personally I don't think I'll need the emergency funds anytime soon. Me and my wife have secured jobs. Our spends are fairly low (10-15% of our monthly income).All the medical expenses are taken care by the our employers. Our families are not dependent on us.
In this case, if I plan to have an emergency funds of 5L, does it make sense to park 3L in debt funds and 2L in Sweep FD?

 

[Hemang]

So here's the background. I got a job in 2018. Married in 2021. But as of today I don't have any emergency funds (whenever I had some 4-5L I gave it to my family as and when needed.)
Now this year my wife also got a job and we can easily create an emergency funds of 5L in the next three months.
I was thinking to use the auto sweep FD to park the funds. Which bank has the best auto sweep rates and TnC?
Are there any better ways to park the emergency funds?

arbitrage funds bhi try kr skte ho bhai, it is considered as equity for taxation purposes. 2nd choice can be any liquid fund which invests in treasury bonds of Indian govt.

 

[Hemang]

Thanks for the input. Personally I don't think I'll need the emergency funds anytime soon. Me and my wife have secured jobs. Our spends are fairly low (10-15% of our monthly income).All the medical expenses are taken care by the our employers. Our families are not dependent on us.
In this case, if I plan to have an emergency funds of 5L, does it make sense to park 3L in debt funds and 2L in Sweep FD?

I usually use kotak banking and book fd for 6 months. Upto 6 months there is no penalty for breaking up of FD. Manually FD making builds more discipline for you, rest auto sweep FD also works the same way, if you break them, time for which you have kept the FD minus the penatly is usually paid to you. Broadly speaking if we break the FD before 90 days, it's return fall to almost below the savings interest rate, so not wise to break them as and when. So spare 2 months expenses in the account and book the remaining for FD.
Also kotak bank has smartly placed 6 months interest almost equivalent to yearly interest rate of FD.

 

[superstar@123]

Go for Arbitrage Fund. They are almost risk-free and will be giving around 6-7% annually.

 

[vine]

Thanks for the input. Personally I don't think I'll need the emergency funds anytime soon. Me and my wife have secured jobs. Our spends are fairly low (10-15% of our monthly income).All the medical expenses are taken care by the our employers. Our families are not dependent on us.
In this case, if I plan to have an emergency funds of 5L, does it make sense to park 3L in debt funds and 2L in Sweep FD?

You will not need emergency funds until the day you need them.
1) Aim for amount of 6-12 months of expenses (including medical expenses, EMI, insurance payments, yearly fees, daily expenses, grocery, power, water, internet, vehicle maintenance, kids fees, etc, etc).
2) look for an instrument you can encash quickly, say, in an hour and also you must be comfortable with doing it.

IMO , FDs , liquid funds, money market funds, sweep FDs, are all good, you can choose any of them.
Please note that different banks, different funds have different redemption times and charges (some are instant, some are not). Please test once or twice for your own peace.
But putting this emergency fund in a savings account is the best. Because EMERGENCY, and I don't need the hassle of redemption of funds and closing FDs.
You do you.

 

[real_name_hidden]

Thanks for the input. Personally I don't think I'll need the emergency funds anytime soon. Me and my wife have secured jobs. Our spends are fairly low (10-15% of our monthly income).All the medical expenses are taken care by the our employers. Our families are not dependent on us.
In this case, if I plan to have an emergency funds of 5L, does it make sense to park 3L in debt funds and 2L in Sweep FD?

As @vine has rightly pointed above, you don't know when emergency can befall. So it's better to have some part in instantly accessible instruments like saving account or sweep fd.

In the end it's your decision.

 

[Avatar Aang]

As @vine has rightly pointed above, you don't know when emergency can befall. So it's better to have some part in instantly accessible instruments like saving account or sweep fd.

In the end it's your decision.

Yes. 2L in Sweep FD and 3L in Liquid/arbitrage funds should be enough IMO.

 

[Avatar Aang]

So from what I've read. Liquid funds will be taxed as debt instrument and Arbitrage funds shall be taxed as equity instrument.
Considering the fact that LTGC is applicable on Debt and Equity after 3 and 1 year of holding. I think arbitrage funds are a better choice.
Apart from that as suggested by @Hemang manual FD of 6 months is also a good choice. But FD needs to be booked in wife's name to minimise the income tax.

People investing in arbitrage funds please share some decent funds.

 

[prankster]

So from what I've read. Liquid funds will be taxed as debt instrument and Arbitrage funds shall be taxed as equity instrument.
Considering the fact that LTGC is applicable on Debt and Equity after 3 and 1 year of holding. I think arbitrage funds are a better choice.
Apart from that as suggested by @Hemang manual FD of 6 months is also a good choice. But FD needs to be booked in wife's name to minimise the income tax.

People investing in arbitrage funds please share some decent funds.

I invest in Tata arbitrage, but you can choose any fund, doesn't make much difference. Do check TER and make a decision.

 

[CyberPsych]

FD for 24x7. Funds - if you redeem on weekend, you need to wait till Monday in some cases. But since you are in TF, you should have credit cards to tackle if any delay in redeeming.

 

[Hemang]

So from what I've read. Liquid funds will be taxed as debt instrument and Arbitrage funds shall be taxed as equity instrument.
Considering the fact that LTGC is applicable on Debt and Equity after 3 and 1 year of holding. I think arbitrage funds are a better choice.
Apart from that as suggested by @Hemang manual FD of 6 months is also a good choice. But FD needs to be booked in wife's name to minimise the income tax.

People investing in arbitrage funds please share some decent funds.

Does not make much difference in such funds bhai.

 

[subham23]

I've opted for Equitas fixed FD rate of 8.2% in 2023 locked for 5 years, now this scheme is not available and normal interest rate also down to 5-6% for most banks 🙂

 

[vine]

So from what I've read. Liquid funds will be taxed as debt instrument and Arbitrage funds shall be taxed as equity instrument.
Considering the fact that LTGC is applicable on Debt and Equity after 3 and 1 year of holding. I think arbitrage funds are a better choice.
Apart from that as suggested by @Hemang manual FD of 6 months is also a good choice. But FD needs to be booked in wife's name to minimise the income tax.

People investing in arbitrage funds please share some decent funds.

Arbtirage funds have their own risks. Please read up about them.
Don't expect any 6% returns for all foreseeable future years like a FD. I mean, you also need to expect negative returns due to the inherent risks of these funds.

 

[Akshay Ajmera]

You can park some amount in Bank with good interest rates, some in fd, some in liquid mutual fund.
This way your emergency fund will be diversified

 

[hender]

So here's the background. I got a job in 2018. Married in 2021. But as of today I don't have any emergency funds (whenever I had some 4-5L I gave it to my family as and when needed.)
Now this year my wife also got a job and we can easily create an emergency funds of 5L in the next three months.
I was thinking to use the auto sweep FD to park the funds. Which bank has the best auto sweep rates and TnC?
Are there any better ways to park the emergency funds?

Hey,
Have a look, if it can be of any help to your query...

H

Post in thread 'Liquid Net Worth - Growing or Debt Ridden'

Sunday at 7:11 PM

Present Setup

Liability Side = 0

CC Due = 0
Home loan= No
Personal Loan = No
Gold Loan =No
Any other Loan/EMI = No
Any Premium Due = No

Liquidity Side

Cash in Hand = 2 Months Expenses
Saving account= 1 Month Expenses
Bank FD = 1 Year of Expenses:
(3 Small FD = 2X3 Months of Expenses
1 Big FD = 6 Months of Expenses)

• hender

• 

 

[panchabhut]

What is the main purpose for which emergency funds are kept? For most salaried people, the only emergency would be medical emergency. Now, most medical facilities accept credit cards. So, as long as your investments can be converted to cash within 2 weeks, there is no need to keep too much liquid money.

The real emergency fund should be readily available i.e. in the savings account. Maintaining cash equivalent to 2 mths net take-home in your bank acct can be a good practice. Now many neo banks are providing high interest rates, including upto repo rate, which can be considered for parking this fund.

If you have HBA, then the best option is to opt for a bank that allows parking of surplus funds in linked account with corresponding reduction in HBA interest.

 

[Avatar Aang]

What is the main purpose for which emergency funds are kept? For most salaried people, the only emergency would be medical emergency. Now, most medical facilities accept credit cards. So, as long as your investments can be converted to cash within 2 weeks, there is no need to keep too much liquid money.

The real emergency fund should be readily available i.e. in the savings account. Maintaining cash equivalent to 2 mths net take-home in your bank acct can be a good practice. Now many neo banks are providing high interest rates, including upto repo rate, which can be considered for parking this fund.

If you have HBA, then the best option is to opt for a bank that allows parking of surplus funds in linked account with corresponding reduction in HBA interest.

Yes. That's one thought. I also don't see any emergency apart from medical one.
However I still want to park some funds in debt type of instruments/ steady return instrumens. Until now I have never invested in debt funds.
I had opened IDFC first account for higher interest rates. Now I don't want to open any other accounts just for this purpose. I'd rather invest in FD with less than 6 months tenure which don't have any penalties.