In New Year Be wise moneywise – invest in contingency funds, passive funds; experts tell why?

As the new year begins, one of the most important resolutions that must be made if you are doing a financial planning is to make a contingency fund, personal finance expert and Managing Director at Optima Money, Pankaj Mathpal said.

This is also known as an emergency fund. Mathpal said that the contingency fund is important to tide away the difficult times. It could be critical in times of late salary disbursement, business not doing well or any other issue.

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It is an investment instrument which must be invested in, for liquidity and not with the view of returns. It is also a safe place to park your money, he further said.

While, most of us have savings bank account, the interests on it are even lower than instrument like short-term Fixed Deposits or FDs, he further said.

Other options include Mutual Funds where investment can be made in liquid funds, short duration funds and money market funds, he added.

Some of the top liquid funds suggested by him include ICICI Prudential Liquid Fund or Aditya Birla Short Duration Fund, he said.

Meanwhile, another expert Mohit Gang of Moneyfront reveals themes that could be beneficial for investors, this year.

Drawing parallels to the US markets Gang said that the market there is quite advanced and ahead of us by almost 10-15 years.

Many themes that are quite popular there, could catch up in India. One of the themes is passive investing in Mutual Funds that now accounts for 51 per cent of the share and has taken over the active investing, he added.

The markets and investment themes are now drifting towards passive investment in India, too. Investors need to simplify their investments in these, he advised.

The must for investors to have in their portfolios is Large cap index funds of Nifty and Sensex, mid cap index funds and small cap index funds, he said.

In India, in mid cap and small cap index funds, the active funds are still giving significant alpha so the markets still have some distance to go. However, in large cap index funds, the returns by index funds and active funds are almost on par.

He said that it is time for the investors to pick Nifty index fund, this year. It should be for a long term view. ICICI Pru Nifty Index fund or UTI Nifty Index Funds are viable options, he further said.

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