Can liquid funds can be considered as emergency funds

The liquid fund investments are subject to minimum 7 day’s exit load on a graded basis, and as the name suggests, some liquid funds with insta redemption facility allow redemption up to 50, 000/- credited instantly to your bank account. This liquidity feature makes liquid funds as one of the options to consider along with parking your money in bank deposits.

Liquid funds are generally less volatile and have relatively lower risks as compared to equity mutual funds. Due to their short duration,liquid funds returns are subject to lower interest rate risk and thereby less prone to volatility. Even though returns received from Liquid funds are not guaranteed as compared to fixed deposits, but they are less risky than equity funds.

Investors look at the liquid funds to invest to create an emergency fund as they are liquid. Ideally, they are designed for investors with a 3-month investment horizon. Since the central bank RBI has maintained a low-interest rate environment to revive the economy from the pandemic-induced economic deceleration, returns from liquid funds are muted . Nevertheless, due to their liquidity and relative safety of underlying investments, they are a good option to consider among mutual funds to create an emergency corpus. Depending on their liabilities, investors can consider parking an emergency corpus equivalent to 1 to 12 months of monthly expenses.

Since liquid funds have a short duration of not exceeding 91 days, this prevents the fund’s NAV from getting impacted significantly as the interest rate fluctuations are minimal. The returns or gains made from liquid funds are subject to taxation. Due to their short-term holding period, the gains are subject to short-term capital gains (STCG) tax depending on the investor’s income tax bracket.

Liquid funds are an option to consider parking your idle money.

Closed Ended Mutual Fund vs. Open Ended Mutual Funds vs ETF

Open-Ended Mutual Funds:

Open ended mutual funds are mutual funds where your investments are not subjected to any lock-in. They are liquid and can be redeemed any time. They may be subjected to an exit load depending on which category they belong to. These types of mutual funds may or may not be listed on the exchange. They are more popular among the investors as compared to closed ended mutual funds.

Closed-ended Mutual Fund:

As the name suggests, closed-ended mutual funds are funds that are subjected to a lock-in period or a fixed maturity period.. Closed-ended funds can be bought or sold real-time just like any additional stock on an exchange. However, one key difference between closed-ended mutual fund vs. open-ended mutual fund is that in Closed-ended Fund once you invest, you cannot redeem your money back unless the lock-in period is over.. The lock-in negates the possibility of an impulsive decision during times of unstable market conditions. A steady AUM helps fund managers to take prudent investment decisions. Closed-ended mutual fundsare mandatorily required to be listed on the exchange but you can invest without a DEMAT account too.

Investors with a long-term investment horizon who do not need the invested money during that horizon can look at investing in closed-ended funds.

ETFs:

Exchange-traded funds are investment vehicles that invest in a basket of securities. These funds are open-ended. You can buy and sell them on the markets just like stocks. They are not available over-the-counter which means you will need a DEMAT account to invest in them. ETFs mirror or replicate the performance of a particular index.

ETFs are managed passively & actively. ETFs generally have lower expense ratios than those charged by actively managed funds.

Investing in more than one ETF could lead to duplication or over-diversification. An ETF tracking the NIFTY 50 and an ETF that tracks technology or IT companies may have many overlaps if the underlying stocks are common.

What are the types of debt mutual funds and their risk classification?

What are the types of debt mutual funds and their risk classification?

Types of Debt funds, Debt funds, types of debt funds, dynamic bond funds, liquid funds

Debt funds are a type of actively managed mutual fund that primarily invests in debt instruments such as Treasury bills (T-bills), Government securities (G-secs), commercial papers (CP), government and corporate bonds, certificates of deposit (CD), and money market instruments.

What are the different types of debt funds in India?

Liquid Funds:
This type of debt fund is considered relatively less risky among mutual funds. As the name suggests, they are liquid and allow investors to redeem and liquidate their investments depending on their needs. The portfolio of this fund comprises instruments that have a short maturity period of not exceeding 91 days.

Dynamic Bond Funds:
Dynamic Bond Fund is where the fund manager dynamically changes the maturity of the portfolio depending upon the interest rate forecast. If the forecast indicates a rising interest rate, then the fund manager may opt for instruments with a longer maturity. If the forecast is indicating a falling interest rate, then the fund manager opt for investments in instruments with a shorter duration of maturity.

Short / Medium / Long Term Debt Funds:
Short-term Funds are a type of debt fund that generally have a maturity period of 1 to 3 years. The portfolio of short-term funds is structured in a way such that their prices are not much impacted by the interest rate movements.

Medium Term debt funds generally have a maturity period of up to 3 to 5 years, and long-term debt funds have a maturity exceeding 5 years. The longer the tenure, the more significant is the impact of the interest rate on the portfolio, which is also known as interest rate risk or duration risk.

Fixed Maturity Plans
This type of debt mutual fund is a closed-ended scheme. However, they can be traded on the stock exchange where they are listed.

Investment in debt mutual funds are generally less volatile than equity mutual funds. However, there are different types of risks in debt funds.

AMFI has very well-articulated the risks present in Debt Securities. Let us take a brief look at the risks prevalent in the debt market instruments.

Interest Rate Risk

The NAV or Net Asset Value of Debt Mutual Funds is inversely related to interest rate movement. Generally, when the interest rates rise, the prices of existing fixed income securities in your debt mutual fund portfolio fall and when interest rates drop, such prices increase. Accordingly, the NAV of the debt mutual fund portfolio may fall if the market interest rate rises and may increase when the market interest rate comes down. The extent of fall or rise in the prices depends upon the duration or maturity of the underlying security.

Credit Risk

Credit risk refers to the risk associated with default on interest and /or principal amounts by issuers of fixed income securities. The credit rating agencies assign a credit rating to fixed income securities and accordingly, in case of a default, the debt mutual fund may not fully receive the amount due to them and the NAV of the scheme may fall to the extent of default. The price of a security may change with expected changes in the credit rating of the issuer, even when there is no default. It may be mentioned here corporate bonds may carry a relatively higher amount of credit risk than government securities. Within corporate bonds too there are different levels of safety.

Liquidity Risk

Liquidity risk refers to the ease of selling debt instruments at or near their valuation yield-to-maturity (YTM) or true value. Liquidity condition in the market varies from time to time and accordingly, the liquidity of a bond may change, depending on market conditions

Assess the illiquidity of the underlying securities of the debt mutual fund portfolio. At the time of selling the security, the security may become illiquid, thereby leading to a loss in the value of the portfolio.

Debt funds are suitable for investors having a lower appetite for risk. Be cognizant of the underlying risk in the portfolio before you invest.

Soldier Outfitting – Past, Present, and The Future

In World War II a soldier didn’t have much to carry. In fact the total weight I’d guess would be less than 35 pounds. The equipment in that decade consisted of bare minimum. A soldier typically carried or worn a uniform, steel kevlar, weapon, canteen(s) with cup, bedroll, and a pack. When the soldier stepped onto the battlefield the total cost of his eqiupment was $170.

From Vietnam-Iraq:

As the years continue we evolve, and as we evolve manufacturing prices inflate. In the 70s the price inflated from $170 to $1,100. Vietnam, the war at that time demanded improved eqiupment, and so the flak vest and M16a1 was developed for the needs of the soldiers. From Vietnam until the first involvement in the Middle East, the Army’s eqiupment hasn’t been upgraded signficantly. Changes have been made, but not as much from the 40s-70s. The inflation of manufacturing increased from $1,100 to $17,500 for the present day. For battlefield operations presently a soldier is outfitted with: advanced body armor, high-tech flak vests, improved kevlars, M-4 Carbine, NVGs/Thermal Sights, ballistic eye protection, digital print fire-retardant uniforms, tennis shoe styled boots, camel bak, kevlar gloves, and ear plugs. With all this eqiupment it’s difficult to have mobility with the weight of 75 pounds.

Futuristic Soldiers:

In the coming years (2015-?) Soldiers should expect many upgrades ranging from full body armor uniform, visor mounted kevlars with digital landscapes, weapons that shoot around objects (buildings), greatly improved communication ear pieces, and overall lighter packing. The Pentagon has already put a price tag on outfitting the soldiers of tomorrow to be from $30-60k (depending on versions).

The Army of tomorrow:

Just to brainstorm and day dream what civilization would be like in the next century. I believe we’d have full bodied armor that is perfectly balanced to our height and weight. Xray, Thermal, NVG screens. Force Fields for offensive and defensive stances. The possibilities are unlimited.

What do you think we’ll have in the next century whether Military or not? I’d like to hear your thoughts in the comment area!

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