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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Case Studies in Comprehensive Financial Advice

Caselet: A client, aged 35, has monthly expenses of Rs 50,000 and no emergency fund. The adviser follows the common rule of keeping six months of expenses as an emergency fund. What is the most appropriate recommendation for where to hold this fund?

The client should hold Rs 3 lakh, being six months of expenses, in liquid instruments such as a liquid fund or a sweep-in fixed deposit. Emergency money needs safety and quick access, which equity and long-duration funds do not offer.

  1. ASmall-cap equity mutual funds
  2. BLiquid fund or sweep-in fixed deposit totalling Rs 3 lakhCorrect
  3. CReal estate investment trust units totalling Rs 3 lakh
  4. DLong-duration debt fund totalling Rs 6 lakh

Explanation

Six months of Rs 50,000 is Rs 3 lakh. An emergency fund must be safe and liquid, so liquid funds or sweep-in deposits suit it. Small-cap equity and long-duration funds carry price risk, and REIT units are less suitable for emergencies.

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