Money market mutual funds can be one of the investment options for those who currently want to accumulate an emergency fund, which should always be prioritized in your financial management.
An emergency fund plays a crucial role in one's life. In this life, we never know what problems may arise. Often, there comes a time when we need sudden funds for emergency purposes.
Why is an Emergency Fund Needed?
In the process of financial management, an emergency fund becomes a crucial point that should not be overlooked. In fact, an emergency fund is a mandatory requirement whenever you budget your monthly expenses.
Why is this emergency fund so important and highly needed? We know that many things can happen in life. There are numerous possibilities that can occur and have an impact on your finances. Currently, you may have enough money to meet your daily needs and even for entertainment. However, who can guarantee your financial condition in the future?
There could be a crisis, a disaster, layoffs, or other unforeseen circumstances that may worsen your financial situation. There could also be emergencies that require you to spend more money. In such situations, having an emergency fund can provide a sense of security.
When there is no emergency fund, you will automatically have to use your own savings or primary funds to meet those emergency needs. This can have a negative impact on fulfilling basic needs.Financial balance is disrupted because you have to withdraw money from your main account. You may also struggle to meet essential or regular expenses.
By now, it is clear that an emergency fund is highly necessary. The presence of an emergency fund will bring you peace of mind, ensure financial balance, and make you better prepared to face any situation in life.
Investment Options for an Emergency Fund
An emergency fund can be built through investment instruments. You can start investing to accumulate an emergency fund that can be relied upon in the future. Here are some suitable investment options for storing an emergency fund:
● Money Market Mutual Funds
The first recommendation is money market mutual funds, also known as MMFs. This type of mutual fund is known to have a relatively low and stable level of risk. MMFs can be a suitable choice for those who may still be hesitant to invest in high-risk instruments. They also offer a high level of liquidity as they can be easily bought and sold.
What's interesting about MMFs is that they have good prospects for returns. The returns are typically more favorable compared to investments such as fixed deposits. Money Market mutual funds are also considered safe, and they have the support of professional Investment Managers.
● Fixed Income Mutual Funds
In addition to money market mutual funds, fixed income mutual funds are also considered suitable for your emergency fund due to their relatively low level of risk.
Compared to equity mutual funds, fixed income mutual funds have lower risk, making them a safe investment option for individuals with a low-risk profile or those who lean towards a conservative approach.
Fixed income mutual funds also offer high liquidity, making them suitable for fulfilling your emergency fund needs. Additionally, all forms of mutual fund investments are typically tax-free.
● Invest in Gold
Investing in gold is also considered suitable for storing your emergency fund. Gold may not provide significant short-term profits, but it can effectively preserve the value of your money.
This form of investment is also straightforward and simple because you only need to store gold assets and sell them only in emergency situations.
Furthermore, investing in gold has become increasingly convenient in the digital age since there are many applications or platforms available that allow you to buy, sell, and invest in gold securely.
● Deposit
Fixed deposit offers a very low level of risk and is considered a safe option, especially for storing an emergency fund. Although the profit margin may be relatively small, deposit can still be a viable choice.
Through it, you can regularly deposit your emergency funds on a monthly basis. In terms of security, it is excellent as long as you choose the right bank to hold your Fixed Deposit.
This can be the best option if you prefer a hassle-free investment for your emergency fund. By having a fixed deposit, you already have adequate savings available when an emergency situation arises.
Considerations When Accumulating Emergency Funds Through Investments
Here are some things to consider when investing for emergency funds:
● Investment Instrument Options
First and foremost, you should pay attention to the type of investment instrument you will use. Earlier, several recommended investment options suitable for an emergency fund were mentioned.
However, it's important to note that each individual has different circumstances and financial goals, so the choice of investment instruments may vary. Ensure that you select the right investment vehicle that aligns with your risk profile and is considered safe. Additionally, make sure you have a clear understanding of the chosen investment instrument.
For example, if you plan to use mutual funds as an investment instrument, take the time to learn about mutual funds, their different types, associated risks, and other relevant factors.
● Required Funds to be Allocated
Next, you need to determine how much money should be allocated each month for the emergency fund investment. It's important to establish a specific amount to maintain consistency.
While an emergency fund is crucial, it is often overlooked as it is seen as a non-essential need. Therefore, it is necessary to have a strong and consistent commitment to accumulating this fund.
Decide on the exact amount of money you want to invest regularly for the emergency fund. Ensure that this amount aligns with your needs and targets while preparing the emergency fund.
There is no exact guideline on how much money should be set aside for an emergency fund. It ultimately depends on your personal decision and investment strategy for allocating those funds.
● Ease of Fund Withdrawal
Certainly, you should also consider the ease of withdrawing funds from your investment. Since this investment will be used to meet emergency fund needs, it's preferable to have high liquidity.
Choose investment instruments that are easy and flexible to liquidate. After all, it's called an emergency fund, which means it should be accessible during unexpected emergencies that can arise at any time.
What if you invest in instruments with low liquidity? It will be challenging to access the funds when there is a sudden need for emergency funds.
Additionally, find out the procedures for withdrawing investment funds when needed. This will help you assess which investment vehicles are most suitable to be utilized as an emergency fund.
● Potential Profitability
Obviously, one of the objectives of investing is to generate profits or returns, allowing your capital to grow. Therefore, consider the factor of potential profitability that can be obtained.
The higher the potential profitability, the better and more worthwhile it is to choose. This means you can accumulate your emergency fund more easily, and the overall amount can also be larger.
However, it's important to understand that higher potential profitability often comes with higher risks. Therefore, you need to prepare yourself for the various types of risks involved.
If you can achieve significant profits from your investments, make wise use of them. It is even better if you reinvest the profits as capital into other investments, allowing your emergency fund to grow further.
Having a larger emergency fund will bring more advantages. You will feel more secure knowing that you have ample savings to face various important situations. Additionally, if no emergencies occur, you can also utilize the emergency fund in your old age. So, there is no harm in having a larger emergency fund through successful investments.
Invest Your Funds in Mutual Funds with Ease
Invest in mutual funds to accumulate your target emergency fund with DBS Treasures with these advantages:
● Supported by Professional Investment Managers
The investment capital you provide will be directly managed by professional investment managers. DBS Treasures collaborates with experienced Investment Managers who are ready to oversee your funds and strive for optimal profits.
● Investment Insights from Financial Experts
DBS Treasures provides a team of financial experts who support your investment insights. They offer the latest and comprehensive market information for analysis purposes.
● Easier Diversification
Diversification is essential when investing to meet your emergency fund needs. Through DBS Treasures, diversification becomes more accessible to implement effectively.
● Transactions with a Single Application
Get a seamless investment transaction through the digibank by DBS Application, from registering for a Single Investor Identification (SID), to buying, selling, or switching mutual funds.
Moreover, the application connects you with various types of mutual funds offered by Investment Managers, categorized accordingly.
With DBS Treasures, you will have access to curated market analysis from a team of financial experts who will communicate it to you. You will also receive real-time opportunities tailored to your risk profile and portfolio needs, powered by Artificial Intelligence/Machine Learning (AI-ML). Your investment planning will be supported with curated solutions related to investment (Grow) and insurance (Protect), allowing you to quickly and confidently invest through your preferred media. In conclusion, investing will be a more convenient and secure experience with DBS Treasures.
With DBS Treasures, investing in money market mutual funds and other mutual funds becomes much easier. Simply click here for more information
