Update (06/06/2017): According to SEBI's new guidelines, instant redeem feature can now be provided only by liquid funds. Accordingly, Reliance AMC has moved the instant redeem option from their Money Manager fund to Reliance Liquid Fund - Treasury Plan. Our Emergency goal recommendation has been updated with the new fund.
At Goalwise, we are always striving to give the best funds for all your goals. Emergency goal is one of the most popular and critical goals amongst our users. We go as far as to recommend that one should not do any long term savings before one has built up an emergency fund.
So what kind of Mutual Funds should be selected for this goal?
They should have two features -
As risk-free as possible - we don't want to subject our emergency fund to the swings of the stock market. This is the money that we will turn to on an unforeseen rainy day - so all of it better be there. Hence, only debt funds - that too only liquid/short term high quality debt funds which don't take any duration or credit risk.
Fast redemption of funds - we also don't want to wait for 3-4 'business' days for the money to come to us once we are in an emergency - the sooner the better.
So far, the funds that best satisfied these two criteria were Liquid Debt funds from reputed AMCs like HDFC, DSP Blackrock etc. Liquid funds are the lowest risk debt funds (similar to FD) and provide redemption of funds within 1 business day (as compared to the 2-3 business days for other debt funds).
But now, we have done even better. What is better than redemption within 1 business day?
Reliance AMC has come up with an instant redemption feature for their
Reliance Money Manager Fund Reliance Liquid Fund - Treasury Plan
which is a liquid fund (FD like risk and returns). This makes it ideal for our Emergency fund!
Usually such features are provided only for investments directly through the Mutual Fund's website but our tech and operations team worked hard with Reliance AMC to integrate this into Goalwise website and now we have it live!
So, for your investments in the new Emergency fund, you will be able to place a redemption request from your Goalwise account and the money will be credited back to your registered bank account at that very instant - you won't even have to wait for the end of the day!
This works for all weekdays/weekends (including bank holidays) and at any time of the day.
The amount that can be instantly redeemed per day (at PAN level) is Rs 50 thousand* (or 90% of your investment value, whichever is lower). This is enough to cover most of our immediate requirements. The remainder of the funds can either be withdrawn the next day or be withdrawn through the normal route (in which the credit gets done in 1 business day).
Did we lose some diversification benefits by just providing one fund instead of the two that we had earlier? May be, but most liquid funds are very similar - they all invest in high rated very short term maturity debt products. The returns of the best fund vs an under-performer will differ by probably half a percent in a year. The advantages of having the money instantly credited to your account when you need it the most definitely outweighs other considerations.
Your emergency goal is one of the most important goals in your financial plan. And with instant redemption we just made it better! :)
P.S. Instant redemption feature is only available to Resident Indians. For NRIs, the redemption will follow the normal Liquid Funds route (in which the credit gets done in 1 business day).
Earlier the limit was 2 lakhs but in accordance with SEBI's new guidelines regarding instant redemption the limit has been reduced to Rs 50,000.