2020 was a challenging year for everyone. When it comes to financial investment portfolios, the bygone year has brought to the forefront the need for having certain vital elements that can help navigate tough times with ease.
Read on to know the five such elements that your investment portfolio must have in 2021.
1. An Emergency Corpus
When job loss and salary deductions became the new normal, your emergency corpus was no less than godsend. It helped many take care of day-to-day expenses and meet essential commitments such as paying monthly instalments (EMIs) for loans, utility bills, grocery expenses, etc.
What is an Emergency Corpus?
An emergency corpus is a fund built for contingency. It helps you meet regular household expenses and even pay loan EMIs when you are going through a crisis such as a job loss or reduced income.
What Should the Value of an Emergency Corpus Be?
It’s advisable to have an emergency corpus equivalent to at least 3 months to 6 months’ expenses. So, for instance, if your monthly expenses are INR 25,000 per month, you must have an emergency corpus equivalent of at least INR 75,000 to INR 1, 50,000.
However, as the Covid-19 pandemic has shown, it’s better to have an emergency corpus for at least a year or more. This will give you more space and flexibility in case an unforeseen crisis drags longer than anticipated.
How to Build an Emergency Corpus?
Building an emergency corpus is easy. Put aside a certain percentage of your income in financial instruments that you can readily convert into cash, right from the day you start earning.
The Indian financial markets offer ample instruments, such as liquid funds and recurring deposits, investing in which can help you build this all-important fund with ease.
Things to Keep in Mind While Building an Emergency Corpus
Some important things that you need to keep in mind while building an emergency corpus are:
- Ease of access to funds – This is an important consideration. Put money into instruments that you can easily access in times of need. For example, if you park money in an instrument with a long lock-in period, it is of little use during an emergency.
- Safety of capital or the principal amount – Make sure the principal amount is not eroded due to market volatility.
- The time within which you can convert into cash – You don’t want to put money in instruments that take too long to be converted into cash, involving cumbersome paperwork. Therefore, park money in an instrument that you can quickly liquidate hassle-free.
Note that in case of an emergency corpus, returns are secondary. To put it otherwise, don’t chase returns while evaluating instruments to put money aside for building an emergency fund.
2. Health Insurance
Another must-have in your portfolio is health insurance, which prevents out-of-pocket expenses in case of hospitalisation, thus preventing drying up of savings. Also, rising medical costs have made it an imperative to opt for a health plan.
Benefits of Health Insurance
A health insurance entails the following benefits:
- Cashless Treatment at Network Hospitals
Every health insurer has a tie-up with hospitals where you can avail cashless treatment. In other words, the costs incurred are paid directly by your insurer to the hospital.
- Ensures Funds are Not a Roadblock in Receiving the Best Treatment Possible
With health insurance in your investment portfolio, you don’t have to worry about the non-availability of funds for treatment.
- Keeps Essential Financial Goals on Track
A health contingency can burn a big hole in your pocket. With personal savings being directed towards treatment, the same can jeopardise essential goals and commitments such as paying EMIs on time, investing on your child’s higher education and retirement among others.
However, by preventing out-of-pocket expenses, a health plan not only keeps these goals intact but also gives you peace of mind.
Things to Consider Before Buying Health Insurance
Some essential things you need to consider before buying health insurance are:
Sum insured refers to the maximum amount of coverage provided by your insurer. While buying a health policy, make sure you opt for an adequate sum insured so that you don’t have to pay much from your pocket. Health care costs in Tier I cities (with a population of 100,000 and above) are higher compared to Tier II…