Confused about creating an emergency fund? Here's your complete guide

My wife (32) and I (33) are a working couple. We have been investing in mutual funds via the systematic investment plan (SIP) route  for the past five years. All our investments are in equities. The only fixed-income investments we have are employee provident fund (EPF) and public provident fund (PPF). Do we need to invest in debt, or should we continue with our equity investments?

That you invest in equities is fantastic. A good mix of investments across categories should be made using the yardstick of time. If you are investing for a financial objective that is one-two years away, consider debt or conservative investments. If the need for your corpus will arise after five to 10 years or more, then by all means go ahead and have a 100 per cent equity portfolio.

As a hobby, I have kept a small portion (Rs 2 lakh) aside for tactical bets. I want to take exposure to silver. Between buying digital silver and silver futures on a commodity exchange, which will be a better option? Just like gold, now individuals can also buy silver for as low as Rs 1 on some platforms, based on the prevailing market price.

You need to have a fair understanding of bullion investing, its demand and supply cycles, and global trends. Tread with caution. The digital option may be used if you want to hold for longer periods while the futures option might be better from a trading point of view. You are welcome to set aside a small amount for tactical bets. You may even consider short-term trading in stocks. 

When is it a good time to make a Will? I am 48 and have two daughters.

The moment you have any asset, it is a good time to make a Will, especially if you have real estate. Often, we miss out on making nominations and specifying how our assets should be distributed if something were to happen to us. The situation is then left as it is for years and decades. Complications arise when children have to take matters in their hands. Financial assets are easy to distribute while other assets pose greater complications. Matters are simplified to a large extent if a Will exists, as it clearly specifies the intention of the giver, what he/she wants to give, to whom, and in what proportion.  

I am single and in the early thirties. I plan to buy a house. While it is my first house, I shall not stay in it. The plan is to invest in it and later buy a bigger one when I have a family. To buy it, should I use up my entire investment and reduce the loan amount, or should I borrow as much as a bank will lend me? My father is also willing to help.

Buy a house when you need it. In the meanwhile, use all the money to make sound, productive investments. You may take your father’s money also and invest it for the same objective. Save yourself the trouble of buying the house now and then selling it. The market may be good or bad. Simplify things. Buying when the need arises will be a better decision. 

I am worried about job loss and want to create an emergency fund. How large should it be and where should I park the money?

Creating an emergency fund is a very good idea. The quantum of such a fund should depend on two things—your industry and your monthly personal expenditure level. If you think that getting another job with your skills will be difficult, then consider an emergency fund equal to one year of expenses, otherwise six months is adequate. Invest in a fixed deposit or a liquid fund. 

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The writer is director, Transcend Consulting. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in



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