I want to create an emergency corpus and want to start an SIP of 10,000 per month. I invest 5,000 per month in Franklin India Low Duration - Direct Growth and Franklin India Ultra-Short bond fund - Super Institutional Plan - Direct Growth. Are these okay for one year or should I pick liquid funds?

—Ramdas Patil

Building a good emergency corpus fund is a pre-requisite that should come before investing for the long term. I hope that once you are done with building this corpus, you would be able to divert your savings to do SIP investments in wealth-building portfolios. Regarding your present investment choices for your emergency corpus, you have appropriately chosen two low-risk debt fund categories— low-duration category the ultra short-term category.

However, one of the two funds that you have chosen has a hidden risk factor associated with it that makes it not quite suitable for your requirement. The ultra-short fund that you have chosen takes a high amount of credit risk in its portfolio—as of June 2018 it held 52% in instruments below AA+ rating as compared to the category average of 19%.

Also, having a liquid fund in such a portfolio will give you faster access to your money in times of need. So, I would recommend that you go with a liquid fund instead of the ultra short bond fund. You can either choose the liquid fund from Franklin Templeton AMC itself or from other established fund houses such as a HDFC or ICICI Prudential AMC.

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Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com.

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