Emergency Funds as an Indicator of your Risk Appetite

Everyone thinks of investments, especially in equity markets as ‘risky’. Undoubtedly, equity mutual funds tend to be riskier than fixed income funds. Generally, greater the risk, greater is the reward (or potential for higher returns). As you begin your journey as an investor in Mutual Funds, you will realize that financial planning websites and tools will ask you numerous and often hard to answer questions to define your risk taking ability.  It is important that you understand your risk appetite before investing.

If you don’t know risk – how can you gauge whether the investments you make justify the returns? Your risk appetite changes depending on the time you want to stay invested, your age, and your financial goals etc. 

Emergency Funds as an Indicator of your Risk Appetite

At Quantum, we look at Emergency Funds as the amount you need to keep aside so that in the event of an adverse situation, such as COVID, loss of job, illness etc, your financial planning and day to day life do not get negatively impacted.

An easy way to calculate this:

Emergency Funds = X times your Monthly Expenses

Emergency Funds can serve as an indicator of your risk appetite. Depending on your risk appetite, the multiple changes and hence the size of the emergency corpus.In other words, risk appetite is the amount of risk you are willing to accept to achieve returns for your financial goals. If you are young and have no significant financial obligations and dependents yet, you may set aside an emergency corpus equivalent to 6 months. On the other hand, if you are older or nearing retirement, or have an EMI to pay off, you will need a large reserve for a rainy day, equivalent to 24 months of monthly expenses or more.

In short, the lower the risk appetite, the higher the emergency reserves, and vice versa.

Quantum’s 12:20:80 Asset Allocation Strategy

As per our tried and tested 12:20:80 Asset Allocation Strategy, we suggest that an investor, keep aside an emergency fund equivalent to your consumption pattern for 12 months.

For example, if your monthly expenses are Rs 100,000 then your emergency fund could be 100,000x12 = Rs.12,00,000. However, as mentioned above, depending on your risk appetite, you can personalize your emergency reserves from a range of 6 months to 36 months of monthly expenses.

Try our easy-to-use12:20:80 Asset Allocation (Baarah, Bees aur Assi) calculator on our website to help you determine how much you need to set aside for your emergency reserves.

Your investable surplus can be allocated to the other building blocks – portfolio diversifying block and growth block using gold and equity funds respectively. Click here to know more

Irrespective of which style of investing you prefer, be it active or passive, Quantum Liquid Funds offer form the core building block upon which the other investments are added.

Park your Emergency Funds in Quantum’s Liquid Fund for these Reasons:

Get Started on the Financial Journey

Most employees receive their bonus around this time. If you are one of them, this may be a good opportunity to use a part of your bonus to create or enhance your emergency fund depending on your risk appetite. If you are beginning to save, you can start with one month and then gradually build it up from there.

When the basics are in shape, one can strategize and quickly embark on a financial journey that helps focus on larger goals for life. The contingencies in life cannot be avoided but reactions to the contingencies can be planned. Being prepared helps to reduce stress and anxiety and allows managing uncertainties in a better manner.

It matters being well-acquainted with the level of risk you’re comfortable with taking on before you embark on strengthening your financial health.

So, go ahead and invest in the Quantum Liquid Fund to have a fall-back option for emergencies and enjoy the festivities ahead.

Name of the Scheme	This product is suitable for investors who are seeking*	Riskometer of scheme
Quantum Long Term Equity Value Fund An Open Ended Equity Scheme following a Value Investment Strategy. Primary Benchmark: S&P BSE 500 TRI	• Long term capital appreciation • Invests primarily in equity and equity related securities of companies in S&P BSE 200 index	Investors understand that their principal will be at Very High Risk
Quantum Equity Fund of Funds An Open Ended Fund of Funds scheme Investing in Open Ended Diversified Equity Schemes of Mutual Funds	• Long term capital appreciation • Investments in portfolio of open-ended diversified equity schemes of mutual funds registered with SEBI whose underlying investments are in equity and equity related securities of diversified companies	Investors understand that their principal will be at Very High Risk
Quantum India ESG Equity Fund An Open ended equity scheme investing in companies following Environment, Social and Governance (ESG) theme	• Long term capital appreciation • Invests in shares of companies that meet Quantum's Environment, Social, Governance (ESG) criteria.	Investors understand that their principal will be at Very High Risk
Quantum Gold Savings Fund An Open Ended Fund of Fund Scheme Investing in Quantum Gold Fund	• Long term returns • Investments in units of Quantum Gold Fund – Exchange Traded Fund whose underlying investments are in physical gold	Investors understand that their principal will be at High Risk
Quantum Gold Fund An Open Ended Scheme Replicating / Tracking Gold	• Long term returns • Investments in physical gold	Investors understand that their principal will be at High Risk
Quantum Nifty 50 ETF Fund of Fund An Open-ended fund of fund investing in units of Quantum Nifty 50 ETF	• Long term capital appreciation • Investments in units of Quantum Nifty 50 ETF – Exchange Traded Fund	Investors understand that their principal will be at Very High Risk
Quantum Liquid Fund An Open-ended Liquid Scheme. A relatively low interest rate risk and relatively low credit risk.	• Income over the short term • Investments in debt / money market instruments	Investors understand that their principal will be at Low Risk

*Investors should consult their financial advisors if in doubt about whether the product is suitable for them.
The Risk Level of the Scheme in the Risk O Meter is based on the portfolio of the scheme as on September 30, 2022

Investors of Quantum Nifty 50 ETF Fund of Fund (Scheme) will bear the recurring expenses of the scheme in addition to the expenses of Quantum Nifty 50 ETF.

Above article is authored by Quantum.

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