What Are the Safe and Liquid Options for an Emergency Fund?

What Are Safe and Liquid Funds?

Which Are the Investment Possibilities for an Emergency Fund & Why?

FAQs About Safe and Liquid Options for an Emergency Fund

Why are liquid funds giving lower returns than a savings account? up-arrow

A reduction in the repo rate by the RBI causes a decrease in the overall interest rates, including those on short-term papers, which can impact the returns of liquid funds. Furthermore, liquid funds charge an expense ratio, which is the cost of fund management. This expenditure ratio can eat away at the fund's earnings, making it harder for the fund to provide better returns than a savings account.

What are Long-term emergency funds? up-arrow

Long-term emergency funds are assets set aside for large emergencies, such as unexpected medical expenditures or catastrophic events. This money can be placed in financial products that pay a higher interest rate while staying quickly available, with a liquidity period of only a few days.

Can I Invest my rainy-day fund in stocks? up-arrow

If you have a sizable emergency fund, you can invest some of it in stocks to gain money. But remember that since stocks are quite volatile, you could have to sell at a loss if you have an urgent expense. Selling stocks might take several days, so you won't have access to the money. So, consider putting part of your emergency fund money in a more liquid asset, such as a money market account.