What are the best options to park emergency fund?

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The current pandemic has taught individuals many valuable lessons, most importantly, the significance of having an adequate emergency fund during a crisis.

Emergency fund should be kept either in savings account or parked in instruments from which it can be easily liquidated. A portion of the assets can also be put in liquid mutual funds, which exclusively invest in money market securities and thus have minimal risk. Fixed and recurring deposits are also viable options.

Liquid Funds

While cash is the simplest to obtain, withdrawing a liquid fund is also not as difficult. Within the stipulated cut-off time, an individual can make a redemption request on the mutual fund site by mentioning the folio number and have the money credited to the registered bank account on the same business day.

That said, many mutual fund houses have also started providing ATM facilities to withdraw from liquid funds. “The most accessible investment product would include funds from the liquid and overnight category. These categories offer quite the product of choice when it comes to investing for a really short period or creating a contingency corpus,” explained Anand Dalmia, Co-founder, Fisdom.  There are also other routes available, such as overnight funds, ultra-short-term funds, and so on, the proceeds of which may be realised very quickly. Overnight funds can also be ideal for instant encashment.

Bank Accounts

Premature closure of FDs is also possible; however, it comes with the bank levying a penalty for withdrawing before the maturity period. Also, some banks offer decent interest rates of up to 7% on a savings account.

Insurance 

In the event of a medical emergency, a health insurance policy might come in helpful and help you save your emergency cash, provided the coverage is enough. A cashless facility by any health insurance company does not even require real payment of bills and reimbursements.

Online investment advisory

Many online advisory firms have started various plans that can provide liquidity during an emergency. For instance, personal finance online platform like Kuvera.in provides ‘SaveSmart’ account, which is connected to a basket of liquid funds (currently 6%) from India’s leading mutual fund providers.

This option enables quick liquidity of up to Rs 2 lakh per day, assuring the availability of an emergency purse at all times (like any other savings bank account).

“Often, savings stagnate in low return earning bank accounts as exigency funds. Liquidity without losing returns is the offering through ‘SaveSmart’. We believe solutions such as these would further strengthen the trust and offer a reason for more inflows into the mutual fund industry,” said Gaurav Rastogi, CEO, Kuvera.in.

Other avenues

When it comes to loans against physical gold, one can easily get a loan on it from Non-Banking Financial Company (NBFCs) and banks. Gold ETF can also be a great option during the time of emergency.

“In Gold ETF- where you can sell online and get money realise in 3 days whereas in Mutual funds- here you will get payments on 2nd day. ETF, which are listed on big exchange here, you will receive payment on 3rd day,” said Ravi Singhal, Vice Chairman at GCL Securities.

Also, PSU Banks have started offering a personal loan scheme for Covid Patients. For instance, SBI has recently launched the ‘Kavach Personal Loan’ scheme for Covid patients. The loan covers reimbursement of Covid related medical expenses that have already incurred. Customers can obtain loans of up to Rs 5 lakh under this programme at an effective interest rate of 8.5 percent per annum for a period of 60 months, which includes a three-month moratorium. This one-of-a-kind product is being offered with no collateral.