Diversify your emergency funds, redeem mutual funds when hit by bank glitch

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HDFC Bank's net banking and mobile app were down for more than two days, starting Monday. The bank claimed that it was a technical glitch, and was working to solve the issue. The worst-hit are perhaps the salaried class as it's the beginning of the month when salaries get credited. 

Some branches too faced issues. Pankaj Mathpal, a Mumbai-based certified financial planner, was at a bank branch. "On Saturday, servers were down even at a few branches, and transactions were not happening. I thought of going to another branch, but I was told that other branches were also affected. Thankfully, I have more than one bank relationship." For Mathpal, it wasn't an emergency, but by Monday, thousands were stranded as they could not withdraw money to pay salaries to their household help and drivers. Some missed out on the due date for paying bills, which they do via net banking, and some could not transfer money online to their families. Manisha S (name changed on request) from Mumbai says: "I have a salary account with HDFC, and I had also parked my emergency funds there. I wanted to transfer funds to my family in another city, but could not." 

The HDFC bank situation shows that just having an emergency fund is not enough. Parking it across channels is essential. 

Have multiple accounts: Financial planners emphasise diversification. Says Mathpal: “Have at least two bank accounts—one in a private bank and the other in a public-sector bank." In case you are not able to access one account, you will be able to access funds in the other one. Mathpal further adds: "Remember, even if the ATMs are working, debit cards come with withdrawal limits. So, having at least two banks, and access to two withdrawal limits, is a good idea." However, over-diversifying by having more two savings accounts could amount to over-kill. 

Cash is king: Part of your emergency funds should be kept at home in cash. Says Kiran Telang, a Mumbai-based certified financial planner: "In a metro like Mumbai, having Rs 15,000-20,000 in cash should suffice.” Be disciplined and do not spend this emergency fund.  

Liquid funds:  Another place where you can park your emergency funds is a liquid fund. Says Mathpal: "Like a savings account debit card, liquid funds, like the one from Nippon India Mutual Fund, come with a debit card. You can withdraw up to 50 per cent of the scheme's balance or Rs 50,000, whichever is lower, in a single day," In fact, this card can even be used to shop for up to 50 per cent of the corpus, or Rs 1 lakh, per day. 

Redeem your mutual funds: However, most liquid fund don't come with ATM cards. Says Telang: "Always fill the multiple bank account registration form at your fund house so that the redemption amount gets credited, not just to one account, but to an account of your choice." You can add up to five bank accounts where the funds from sale of units can be transferred. You will get this choice only when you fill the registration form, and request to activate this service in advance. 

Have three to six months' expenses kept aside as emergency fund.  “The ratio will depend on your comfort zone. For many a significant chunk will be in a liquid fund, rest in two savings bank account, and cash in hand could be maximum Rs 20,000. 
Senior citizens may prefer to have a substantial chunk in savings accounts,” says Telang. For most the ratio could be 55 per cent in liquid funds, 20-25 per cent in each savings accounts, and 2-5 per cent cash in hand.

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