According to Certified Financial Planner Shweta Shastri, the optimal approach involves splitting emergency funds strategically between savings accounts and liquid funds. Keep at least 1-2 months of expenses in savings accounts (approximately ₹1-2 lakh for a ₹1 lakh monthly budget) as instant access money. The remaining portion should be allocated to liquid funds, earning around 6.5-7% returns with very low risk. Liquid funds offer instant redemption facilities up to ₹50,000 or 90% of folio value per day for quick access without stress. This approach is supported by recent financial planning advice suggesting keeping at least 6 months of expenses in a liquid fund for financial security. For investors with ₹30 lakh savings, experts recommend building an emergency fund first, keeping 6-12 months of expenses aside, and then diversifying across equity, debt, and gold funds for balanced wealth creation.
Liquid funds carry specific risks despite their low-risk profile. As reported by Upstox, key risks include interest rate risk where NAV may decline if rates rise, credit risk though rare in high-quality portfolios, and inflation risk where returns may lag over the long term. CFP Shastri recommends choosing funds with high AAA-rated holdings, strong AMCs, and higher AUM. Investors should always check portfolio holdings before investing to understand the underlying securities and risk profile. Recent financial guidance emphasizes the importance of expert management and flexibility in actively managed funds, which can adapt to market conditions and aim to outperform the market. For short-term goals (1-3 years), debt mutual funds are recommended over high-risk options like forex or crypto trading, which can wipe out savings.
Liquid funds are not instant cash in all situations, with redemptions typically reflecting in bank accounts the next working day (T+1). According to the report, within the first 7 days, a small graded exit load applies starting around 0.007% on Day 1 and gradually reducing to zero by Day 7. CFP Shastri advises against parking money in liquid funds that may be needed within the next day or within 7 days, emphasizing the importance of understanding the redemption timeline and associated costs. Recent financial planning suggests that actively managed funds offer higher potential returns compared to index funds, with professional fund managers making informed decisions and providing better risk management capabilities.
Liquid funds are designed for short-term parking, generally up to 6-12 months, and are not suitable for long-term wealth creation. As reported by Upstox, liquid funds invest in ultra-safe securities maturing in under 91 days. If liquid fund balances exceed ₹2-3 lakh beyond emergency needs, it is recommended to initiate a systematic transfer plan (STP) into equity or hybrid funds for better long-term compounding. The true value lies in carefully balancing both options while being aware of risks, time horizons, and liquidity requirements before transferring funds. Recent financial guidance supports this approach, recommending diversified strategies including equity mutual funds for growth potential and debt funds for stability and liquidity, with experts emphasizing the importance of regular portfolio reviews and ongoing professional guidance for long-term success.
