I have 2 Lacs in Kotak Sweep in Account as Emergency Fund. Should I keep it as it is or should I invest it in some debt or liquid fund

Even though Kotak Mahindra Bank gives higher savings bank interest compared to other banks, liquid / debt funds can give much better returns. So unless you need the entire money overnight, why should you lose out on returns? You should ask yourself, why you have kept the said amount in your savings bank account. Do you anticipate to use it for some upcoming expenses? If yes, what is the timeline of those expenses, in other words, when do you expect to draw from your savings bank to meet those expenses? Is the entire amount in your savings bank, an emergency fund? If not, what portion of it, is your emergency fund requirement?

Once you analyze these different questions, based on your / your family’s needs, you will be able to determine how much you should invest in debt mutual funds and also what type of debt mutual funds. Liquid funds are ideal investments to park your money for a few days to a few months. There is no exit load and your redemption request is processed (and credited bank account) within 24 hours of the redemption request. However, please note that, mutual fund offices are closed on weekends and holidays. Therefore, if you put a redemption request, it will be processed on the next business day. Therefore, you have to plan accordingly. As such, you should have enough balance in your savings bank account, to meet any expense on a weekend or a holiday. If you do not plan to use the money in your savings bank account for more than 3 – 4 months to a year, then ultra short term debt funds (previously known as liquid plus funds) are better investment choices compared to liquid funds. These funds are very similar to liquid funds (no exit load, redemption request processed in 24 hours on business days), but it may exhibit more volatility than liquid funds. However over an investment horizon of 3 – 4 months or more, it can give higher returns than liquid funds. If you do not plan to use the money in your savings bank account for more than a year, then you can consider short term debt funds. These funds may have exit loads and therefore you should be prepared to hold it for a year or so. Short term debt funds have very little interest risk and can give higher returns than both liquid funds and ultra-short term debt funds. To see the top performing funds in each of these categories, please go to our MF Research Section. Select the mutual fund category and the investment period based on your needs and see the top performing mutual funds along with the returns in each category.