INSUBCONTINENT EXCLUSIVE:
Before you parked money into a mutual fund, some sceptic(s) probably told you to refrain from the "risky" investment, and instead play safe
by embracing reliable as well as time-tested financial instrument of bank fixed deposits (FDs)
There is no denying the fact that market-led financial instruments are relatively illiquid and riskier than the fixed income instrument such
as bank's term deposits or fixed deposits
However, if you plan well and allocate the money rationally, then you can enjoy the same liquidity and access funds in case of emergency as
and when you require it.It must be understood that the mutual funds offer the redemption (settlement) option of t+1, which means that if you
invest today, you are eligible to redeem the money tomorrow, if you decide to opt for it.However, there is a cap on withdrawal to the tune
of Rs 50,000 from one fund in one day
So, in case you want to access your funds to the tune of (say) Rs 1.5 lakh then it will take you at least three days (from one fund) to do
so.To circumvent this problem, the experts advise depositors to allocate investments to more than one mutual fund so that one becomes
eligible to withdraw more than Rs 50,000 in one day's time from one fund
For instance, if you happen to stagger your investments across three different liquid funds, then your daily withdrawal limit jumps
automatically to Rs 1,50,000 (50,000X3).However, the investor must be informed that this strategy works only when you foresee the
requirement of more than Rs 50,000 with few other investment options to rely on."As liquid funds are considered to be least risky along with
least volatile among mutual fund category, having 2-3 schemes is advisable to park for contingency fund if the need is more than the set
Options For YouAt the same time, some experts have a slightly varied take on the idea of putting money into more than one mutual fund solely
for being eligible to redeem more than Rs 50,000 in a day
They argue that when such an emergency can occur, then instead of liquid mutual fund, one should count on the bank's term deposits and/or
savings bank accounts."Make sure you do not allocate any emergency funds to equity oriented schemes despite the fact that mutual Funds offer
high liquidity and potentially higher returns than other emergency fund options such as savings accounts and fixed deposits," rationalizes
Harsh Gahlaut, CEO, FinEdge.Lakshmi Iyer, CIO (debt) and head of products, Kotak Mutual Fund, echoes the same sentiments
"If diversification is for this purpose (redeeming over Rs 50,000 in a day), it may not be needed," she told TheIndianSubcontinent.At the
same time, she doesn't dismiss the idea of diversification within mutual funds as a concept."Diversification within mutual funds is a good
idea," she said.Whether investor decides to spread their investment across one fund or more is a very individual decision that should be
based on the individual's requirement and the availability
For instance if the investor already has ample funds in bank fixed deposits (FDs) then they shouldn't rely on liquid funds for any
contingency.Either way, the investor must make note of the popular advise that implies that the investments in liquid funds shouldn't be
made for any long-term financial goal."This amount should however be parked as contingency purpose and not as a long-term investment," said
