A reader asks,
I have an emergency fund that doubles up as a buffer for unforeseen expenses and for the pink slip. I currently have three-months’ worth of expenses in this fund which is lying as a cash balance in my savings account. How can I structure this fund in order to earn a better return?
What do you think of this strategy?
- Retain 1/4 of the fund as a cash balance in the savings account.
- Move 3/4 of the fund into a pure-debt fund.
I did some research and found HDFC’s Cash Management Plan Savings Plan (Growth) (no entry load, no exit load, high liquidity) to be a good choice for #2.
What do you think?
Vinaya- I am also in the same boat like yours. I will review HDFC Cash management Saving Plan.
I am reviewing the following:
a. DSP Blackrock top 100 Equity (growth)
b. DSP Balanced Fund (growth)
c. Franklin India Blue Chip and Prima Plus (growth)
d. UTI Master Value Fund (growth)
This year in particular, DSP Blackrock Top 100 Equity hasn’t performed as well as its peers have. I also remember reading somewhere (Morningstar or Value Research…not sure) that Franklin India Prima Plus hasn’t really been up to the mark of late.
My take is a CD ladder (or shall we call FD ladder for India :) and in a nationalized bank) that you suggested in one of posts. I know by putting into MFs one can gain a better return than a FD, but then it is a buffer that one has built to depend on when handed a pink slip. So why take risk ?
Good idea too.
In that case, 1/4 of the fund would remain as a cash balance in the savings account and the remaining 3/4 of the fund would be in a 3-month CD/FD ladder with each of the 3 FDs having a face value equal to 1/4 of the fund to begin with. Perfectly safe and reasonably liquid.
When in need, you’d first use the cash balance. You’d next break that FD with the nearest maturity date.
I have more than a year buffer on emergency funds for pink slips etc, I’ve already invested in many FD’s, I am yet to take up an option of ppf account which I would soon do..
Can you educate me more about this HDFC Cash management Plan Savings Plan?, I already have an HDFC salary account.
You can read up at http://www.hdfcfund.com/Products/SchemeDetails.aspx?SchemeID=33d0f25d-3f39-4237-a8ac-1f47a6034b38.