Why should you build an emergency fund with a fixed deposit?

Stock market indices have fluctuated constantly lately, swinging the economy like a small plane hitting turbulence. With market volatilities reaching record highs, it seems unclear when we will stabilize. Despite the relief measures announced by the government, the economic stress continues to accumulate over the weeks. According to the Center for Monitoring Indian Economy (CMIE), a private think tank, unemployment in India hit an all-time high of 23.5% in May. Job losses and pay cuts have become a daily affair.

In the face of these unprecedented events and looming uncertainty, the need for emergency funds has come to the fore. People with an emergency fund are in a better position to support themselves and their families in the event of financial fallout or any adverse financial impact.

How to build an emergency fund?

An ideal emergency fund should offer security, liquidity and decent growth to help you meet your monthly obligations and preserve your lifestyle, without any negative impact on your CIBIL scores or credit reports. Thus, it is advisable to set aside at least three to six months of living expenses in an emergency fund.

The key, however, is to identify the right financial instrument to build and grow an emergency fund, not only to deal with the current situation, but also for difficult situations in the future. Although there are several investment instruments and asset classes, it is crucial to choose an instrument that provides security for your savings, to help you through difficult times.

Here is an overview of some options that can work as good emergency fund investment instruments.

1.Savings account: The purpose of maintaining a provident fund is to have cash available whenever you need it. In this regard, it makes sense to keep your safety money in a savings account. However, keeping money in a savings account earns nothing compared to investing in fixed deposit, which not only ensures liquidity, but also grows your capital at a steady rate.

2.Gold: In times of heightened uncertainty, gold tends to become an attractive bet. Since ancient times, Indians have hoarded gold to provide liquidity in times of crisis. The yellow metal is at an all-time high right now. The rise in prices can only continue until global investors remain cautious, and the trend could reverse as macroeconomic fundamentals improve.

3.Bharat Bond ETFs and Gilt Funds: Due to zero default risk, Bharat ETFs and Guilt funds are also considered safe. Recessionary trends and uncertain markets are also pushing investors towards lower risk instruments like the Bharat Bond ETF. However, long holding periods might not be as lucrative compared to a corporate FD. Also, Bharat Bond ETFs are taxed like other debt funds.

The Reserve Bank of India tries to keep benchmark interest rates as low as possible to stimulate the economy. This has led to interest in guilt funds, which work well in a falling interest rate regime. But this also comes with the risk of negative returns, when the rate scenario reverses. So, in such a scenario, investing in a fixed deposit appears as a better choice. Unlike market-linked instruments, FD interest rate are pre-determined, which can help you get guaranteed returns without any effect of market fluctuations.

Build an emergency fund with Bajaj Finance Fixed Deposit

In order to inject liquidity into the shrinking economy, the Reserve Bank of India cut repo rates, which led to lower FD interest rates offered by financiers, due to downward pressure . After repeated rate cuts, average FD interest rates in India range from 5-6%, with several banks also offering lower interest rates than savings accounts.

In this scenario, Bajaj Finance FD emerges as a lucrative option that provides the right balance between security and savings growth. Since you need a high rate of interest to build up your emergency corpus which can support 3-6 months of living expenses, at a faster rate.

The best way to grow your savings is to invest online, so you can get an extra 0.10% rate advantage to help you grow your savings even more. Seniors can benefit from a higher interest rate of 0.25%, regardless of their mode of investment. To better plan your investments, you can always use the FD Interest Calculator, which helps you know your feedback in advance.

Here is an overview of the tables below, which show how an amount of Rs. 1,00,000 invested in a Bajaj Finance FD develops for different clients, across different mandates.

In the tables above, you can see how an investment in Bajaj Finance FD can also offer attractive returns. So, in these times, investing in a Bajaj Online Finance FD can be a great choice to stay covered against any unforeseen circumstances. For those who are unable to raise a lump sum, but are looking to build a corpus, Bajaj Finance also offers the convenience of a monthly savings option with Systematic Deposit Plan (SDP). With SDP, you can save amounts starting from Rs. 5000 per month, and you can make from 6 to 48 deposits, choosing terms between 12 and 60 months for each deposit.

The best part is that this FD is rated high in terms of security, with the highest security rating of FAAA/Stable by CRISIL and MAAA/Stable by ICRA. With a passbook deposit of over Rs. 20,000 crores and the trust of over 2,35,000 unique FD consumers, you can be assured of the safety of your funds. The fact that this NBFC is one of the only ones to have ‘0 unclaimed deposits’ further shows how far the company is going, to ensure timely credit of the due amount for all deposit holders.

How to raise funds in an emergency?

One of the biggest advantages of an FD over other investments is that it can be converted into available cash when needed. At maturity, an FD guarantees guaranteed returns, but if you need funds before your FD matures, you can liquidate the deposit, after the minimum lock-up period of 3 months.

All you need to do is submit your original Fixed Deposit Receipt (FDR), which is affixed with a Re. 1 revenue stamp duly signed by all depositors, and a demand letter addressed to Bajaj Finance Limited, requesting the premature closure of your account fixed deposit. You can submit these documents to the nearest BFL branch and have your money credited to your registered bank account within 48 hours.

However, if you don’t want to lose any interest earned on your deposit, you can always consider taking advantage of a loan against fixed deposit which can let you get money within 24 hours. This will help you finance your immediate financial needs at a nominal interest rate, without you having to lose the return on your fixed deposits.

With convenient investment processes, easier access to your savings, and the ability to get a loan against your deposit, Bajaj Finance FD emerges as a great emergency fund option. Not only does this help you keep your money safe, but also allows you to create a safety net in case of an emergency.

Disclaimer: This content is distributed by Bajaj Finserv. No HT journalists are involved in the creation of this content.