Hi, In this video, we will be talking about the six ways through which we can make investments for an emergency fund.

Hi, In this video, we will be talking about the six ways through which we can make investments for an emergency fund. As we all know, an emergency fund is an amount set aside for financial emergencies like hospital expenses, sudden unemployment etc. Since we should only use this fund in case of emergencies, isn’t is better if we invest this money to make it grow, rather than let it sit idle? Also, since emergencies require quick action, we will need to invest these funds in places from where we can withdraw funds immediately.

So, let us discuss six liquid and short-term avenues to invest our emergency fund in. The first one is liquid mutual funds. A liquid fund is a debt mutual fund which invests in money market instruments like treasury bills, certificates of deposit, and commercial papers. These funds have a maturity of 91 days. This makes them an ideal short-term investment. These funds have low risks, but they offer more interest than an average savings bank account.

Next, is ultra short-term mutual funds. These funds invest in fixed-income instruments with maturities of up to 6 months. Unlike liquid funds, they have investment horizons ranging from one week to 18 months. There are two benefits to consider while investing in this fund. Firstly, it offers very high liquidity. Also, it offers higher dividends than a regular liquid fund. Next is Money Market Funds. These mutual funds invest in short-term debt and cash and cash equivalents of high ratings.

These funds offer suitable returns, minimal risks and a short investment horizon of up to one year. Another alternative is Systematic investment plans. An SIP is an investment avenue that lets us invest in mutual funds of our liking with regular deposits of amounts as small as ?500 per month. With an SIP, we can invest in high-risk-and-return mutual funds like equity and hybrid funds, without letting go of too much money at once.

Next, is Flexi Fixed Deposits. Flexi deposits are a newer category of fixed deposits. They combine the benefits of fixed deposits and savings accounts. How? They offer the interest rates of fixed deposits, but they also allow the withdrawal of funds like savings accounts. Different banks have their own set of withdrawal policies, and you can choose the withdrawal limits that suit your needs best. Lastly, let’s discuss government bonds. These bonds offer a fixed maturity with the safety of a government-backed investment. If you already have an emergency fund that you’ve built over the years, you can invest it here to let it grow.

Also, instead of directly investing in them, you can invest in a mutual fund that invests in these bonds. Life is unpredictable and you may not know what’s going to happen next. So, it is always necessary to keep aside a certain amount as emergency fund in cash or as liquid assets so as to use it at the earliest possible time when needed.