The Importance of Liquid assets in Contingency planning

In today’s unpredictable world, financial planning is no longer a #luxury—it’s a necessity. Whether it’s a medical emergency, a sudden job loss, or an unexpected home repair, life can throw curveballs that demand immediate access to funds. For Indians, where family responsibilities and societal #expectations often add layers of financial complexity, having a robust #contingency plan is critical. At the heart of this planning lies the concept of liquid assets—money that can be quickly accessed without significant loss of value. But how do you strike the right balance between cash reserves and investments? Let’s explore.

Why Liquid Assets Matter

Liquid assets, such as cash, savings accounts, or fixed deposits with short maturity, are the backbone of any contingency plan. They provide immediate financial firepower when you need it most. Imagine a scenario where a breadwinner in a #middle-class Indian household loses their job amid a slowing economy—a situation not uncommon in the post-pandemic era. With rising inflation (hovering around 5-6% in India in 2025) and expenses like school fees, EMIs, and healthcare costs, having liquid funds can mean the difference between stability and distress.

Cash reserves offer peace of mind and flexibility, ensuring you don’t have to sell off long-term investments at a loss during a market downturn. However, keeping too much money idle in a savings account (earning a modest 3-4% interest) can erode its value over time due to inflation. This is where the debate between cash reserves and investments comes into play.

Cash Reserves vs. Investments: Finding the Balance

Cash reserves are like the emergency kit in your car—always ready but not meant for long journeys. Financial experts often recommend maintaining 6-12 months’ worth of living expenses in liquid form. For an average urban Indian family spending ₹50,000 monthly, this translates to ₹3-6 lakh in cash or near-cash options like liquid mutual funds or short-term FDs. These funds ensure you can weather short-term storms without disrupting your broader financial goals.

Investments, on the other hand, are your wealth-building engine. Equity mutual funds, stocks, or real estate can offer higher returns (often 10-12% annually over the long term in India), but they come with risks and lower liquidity. Selling stocks during a market crash to fund an emergency could mean locking in losses, while withdrawing from a fixed deposit prematurely might incur penalties. This is why diversification is key—balancing liquid assets with growth-oriented investments ensures you’re prepared for both the present and the future.

The Inevitable role of an Investment Adviser

This is where an investment adviser becomes inevitable. A professional can tailor a contingency plan to your unique needs, helping you allocate funds between liquid assets and investments based on your risk appetite, income, and goals. For instance, they might recommend a mix of liquid mutual funds (offering 6-7% returns with high liquidity) for emergencies and equity SIPs for long-term wealth creation.

During tough times—like the economic #uncertainty of 2020-21—an adviser can guide you to avoid panic-selling investments, rebalance your portfolio, and tap into liquid reserves strategically. They can also introduce you to tools like contingency funds or insurance-linked investments, which are gaining traction in India. With SEBI-registered advisers now leveraging technology to offer affordable services, even middle-income families can access expert advice.

Conclusion

Financial planning is about preparedness, not prediction. Liquid assets provide the safety net, while investments fuel your future. In the Indian context, where economic and familial responsibilities intertwine, striking this balance is both an art and a science. With the help of an investment adviser, you can navigate tough times with confidence, ensuring your money works as hard as you do. After all, in a country where “paisa vasool” is a way of life, smart planning is the ultimate return on investment.