Parking funds is usually for two reasons – one, for emergency funding, the other, for pure parking, where the funds are held for a particular purpose.
We explain the concept of pure parking with an example.
If you have sold real estate for Rs 40 lakhs and intend using that money to buy another piece of real estate, you’ll need to hold/ park the amount till you identify the suitable property. This may take a week, a fortnight, a month or six months. However, you will want to complete the transaction as soon as you identify the right property and for the right price. This makes the period of investment highly uncertain. The investment must also have high liquidity and be readily available when you need it.
The avenues for parking funds are the same as those for deploying emergency funds. They are:
- Current accounts
- Savings accounts
- Flexi-deposits withbanks
- Liquid mutual funds
- Short-term mutual funds
- Short-term floating rate mutual funds
- Quarterly interval Fixed Maturity Plans
Earning regular returns
Apart from building an emergency fund or parking funds, people invest to earn regular returns.
For resident Indians, avenues for earning regular returns are:
- Bank fixed deposits
- Post office monthly income scheme
- 8% taxable Government of India savings bonds
- 9% senior citizens’ savings scheme
- Public provident fund
- Post office time deposits
- Intermediate-term fixed maturity plans of mutual funds
- Arbitrage funds
Future returns on debt investments are virtually impossible to predict, both in the short and the long run. Sometimes, certain regular returns avenues may appear attractive. At other times, other avenues in this category may come into the limelight.
What you need to know about investing to earn regular returns:
- Worry about it only when you need to invest for this purpose; planning for the best option in advance doesn’t help.
- Do not invest in such avenues when you are working or are anyway earning a regular income from employment, business or profession. Instead of investing your savings from this productive period in further avenues for regular returns, invest them in avenues of growth.
- Get adequate insurance, establish an emergency fund and begin a retirement fund when you start working. Channelise savings into growth avenues of investment. Simultaneously, take steps to acquire a house if you haven’t already done so or are not likely to inherit one. When you approach your retirement age, liquidate investments in growth avenues to the extent necessary for investing in avenues for regular returns, which will provide income to support normal living expenses.