Kotak Banking and PSU Debt Fund as Emergency Fund

Kotak Banking and PSU Debt Fund, is a good debt mutual fund that can be preferred by an investor to create the emergency fund. An emergency fund is the savings set aside to cover unanticipated financial emergencies and becomes handy during periods of economic slowdown and recession. The most preferred route for emergency fund build up is Bank recurring deposits. Debt mutual fund is another option available to an investor to create the emergency fund.

What is a debt mutual fund?

Debt funds are special schemes of mutual funds that invest in fixed income securities like bonds and treasury bills. These investments are less risky compared to equity mutual fund schemes. Net asset values (NAVs) of debt funds are less volatile compared to equity funds. Debt funds too face market and credit risks. Market risk is the risk associated with the interest rate fluctuation in the market. Credit risk arises when the issuer of the instruments fails to make prompt repayments of the interest or principal. Hence, it is important to choose debt funds with lower credit risk, better portfolio diversification, short-to-medium maturity profiles and inherent high liquidity.

There are different types of debt mutual fund schemes. Debt funds are categorised based on the tenure or nature of invested debt instruments. Liquid funds, money market funds, dynamic debt funds and corporate debt fund are major among them.

Why is Kotak Banking and PSU Debt Fund a good investment option?

Kotak Banking and PSU debt fund invests at least 80% of the Asset Under Management in the debt instruments issued by Banks, public sector undertakings, public financial institutions and municipal bonds. The balance of AUM goes to government securities and corporate bonds. Thus the investments are mainly in less risky investments.

How has been the performance of Kotak Banking and PSU Debt Fund?

The present AUM of the fund is Rs. 4745 Crore. Kotak Banking and PSU debt fund is managed by Mr. Deepak Agarwal with more than 18 years of experience in the industry. The scheme has provided a CAGR of 7.45% since its inception on 29th December 1998. The last 7 years CAGR return is 8.61%.

What are the investment options available with Kotak Banking and PSU Debt Fund?

Kotak Banking and PSU debt fund is an open ended debt fund with both growth and dividend options. Minimum purchase amount is Rs. 5000. Additional investment can be for Rs. 1000 and in multiples of Rs. 1 thereafter. The Fund charges Nil exit and entry loads. Redemption can be done even for Rs. 1. According to the fund, the ideal Investment horizon is 1-3 months. Investment can be through SIP mode too and is best suited for the investors with low to medium risk appetite.

What constitutes the portfolio of Kotak Banking and PSU Debt Fund?

Nearly 75 % of the investment is in AAA or equal instruments with limited credit risk. The remaining portion is invested in AA rated debt instruments and term deposits to better the return. The average portfolio maturity of Kotak Banking and PSU debt fund over the past three years is maintained between 2- 4.6 years.

The fund has invested in the debt instruments of ICICI Bank, Power Finance Corporation, Rural Electrification Corporation and Food Corporation of India.

Emergency Fund – Recurring Deposits and Debt Mutual Funds

Investors please note that mutual fund investments carry various kinds of risks and shall seek advice of their financial planner before investment.