If you don’t find ways to make your money work for you while you sleep, you will work until you die.
Hence make every single penny you have work for you. In this article, we will talk about why it is essential and how you can do it.
What are dormant funds?
Most of us today have many bank accounts. Most accounts have a minimum balance clause. Now let us assume you have four savings accounts. Of these four accounts, most of the transaction is happening in one account (mostly, it will be your business or salary account). For the remaining three, you only maintain the minimum balance and deposit money once in a while. The funds that are in the other three bank accounts can be called dormant funds. Similarly, if you are sitting on cash in your home for no reason, it is also a dormant fund.
Funds in your possession that are sitting idle for months (years) and will continue to do so in the future are called a dormant fund.
Dormant Funds v/s Emergency Funds
The first thing a financial planner will tell you is to create emergency funds. Emergency funds are basically funds you keep for the worst-case scenarios – a medical emergency, job loss, etc. By the above definition of dormant funds, emergency funds are also dormant. You keep emergency funds in the savings account or FD, but they sit there for years. We hope you don’t ever have to touch your emergency funds.
Whatever discussion we are making in this article is for dormant funds only. Your emergency funds have a completely different purpose so let them as it is.
Evaluating dormant funds
The first thing you need to do is figure out how much dormant funds you have. There could be multiple reasons for owning dormant funds. You are too lazy to do anything about it, or you don’t know what to do with them, etc. Follow the below steps to do something about them –
- The first thing you need to do is check all your savings accounts. Figure account if there is any minimum balance. If there is a minimum balance clause in your accounts, it is better to close the accounts. Having two savings accounts is more than enough unless others are zero balance accounts.
- Calculate how much dormant funds you have. Include the cash at home as well in the calculation.
- Try to evaluate – do you really need this fund in the near future?
- Now that you see substantial funds in one place, your mindset should be of an investor – don’t think of spending it. You were doing well even without it.
Why do all this exercise?
You must be wondering why to do all these calculations – what is the benefit? Here is a simple maths to make you understand the need. Assume you have dormant funds of Rs 1,00,000.
- If you continue to keep your dormant funds (in a savings account) for the next five years, at the end of five years, you will have Rs 1,16,000 with 3% percent returns (it will remain the same if you keep cash at home). You may think – you are making something, and money is safe at least. If you factor in inflation, you are in losses. Please don’t let that happen to your hard-earned money.
- If you make a wise decision and invest your money with minimum risk, you can get an average return of 10%, which takes your fund to Rs 1,65,000.
- It is an average-case scenario. If you make smart investments, you may get 15% returns which take your fund to Rs 2,10,000.
Yes, the return can be lower as well. However, with a five-year horizon, you will definitely make more than doing nothing about dormant funds.
Another advantage – If you have not explored investment options so far, you get to learn investing. What are different investment options, how do they work, what kind of returns you can get, etc?
The big question – What is a profitable investment?
There are many investment options available to you. Some of the options are mutual funds, gold, equity, bonds. If you are looking for the best returns and want to make your money work for you – the best option is direct equity.
What if I don’t understand equity?
We know a large percent of the Indian population has little understanding of the equity market. It is fine – you already have a full-time job, a family to look after, kids to play with – your time belongs to them.
If you have dormant funds, you must invest them well. So you can do more for yourself and your family. We understand your priorities, and hence we created Jarvis Invest.
It is an AI-driven platform that creates an equity portfolio based on your risk profile and investment horizon. If you don’t need dormant funds for three years, it will create a stock portfolio accordingly. If your horizon is five years, the stocks will change. Even if you don’t understand the ABC of investing, you can invest through Jarvis Invest and make the most of your dormant funds. Once you see the magic – how money grows, you can decide if you want to invest more through the platform.
We hope you understand what you are losing by keeping dormant funds and what you can gain by investing them smartly.