Emergency cash reserves – where to keep

Many of my posts are based on the Financial Planning / Mutual fund training class that I do. One question that normally people ask me about where to keep their emergency funds. I do give a variety of answers, but here is what I have done:

A friend who is an investment adviser has a brother who is a builder – and at any point of time he is my CASH of first call! Other than this, you could keep your cash in the following places:

1. Your mattress/ cupboard / rice container: in an absolute emergency the only cash that you can really access is the cash on your hand. Decide where you wish to keep it!

2. Savings bank / Current account: This may not earn much interest but is available by just inserting the atm card whenever you wish to have the money. However, please remember that there could be a limit of say Rs. 20k per DAY.

3. LIQUID FUND: Money not immediately required can also be kept in Liquid funds instead of a savings account – the net return on investment is surely higher in a liquid fund than in a SB account (net of tax).

4. Bank Fixed deposit: More liquid than a liquid fund, but less than a savings or current account.

5. For the bigger people gilts, etc. could also be an alternative.However my recommendation is smaller investors should stick to alternatives 1-4 and leave alternative 5 to the more adventurous investors.

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