Emergency fund??
Why Emergency Fund is required?

An emergency fund is a crucial fortification step, but we do not have a tailor-made product for
this and nor is it necessary. If we can find a way to replenish the emergency fund when it is used, where we put the fund is pretty much irrelevant.
Emergency fund is supposed to be used only during emergencies.

. Buying a car is not an
emergency but job loss is. This fund should be liquid and easily available. Emergency fund is a protective layer, our investments and savings are not affected during emergencies and it helps maintaining discipline in investing.

How much to set aside?
• No general thumb rule like 6 months or 12 months. Save as much as you can.

• Sum equal to 6 months EMIs: Leave it even after you are debt free!

• Sum equal to 12-15 months household expenses: Six months to start with and then built
up slowly

• Sum equal to at least 50% of Mediclaim sum assured: Requires constant contribution!

• Any excess funds after accounting for investments and expenses (in that order!):
Contributions lasting a lifetime!
Use simple products like a savings bank account, liquid fund and arbitrage (do not park immediate emergencies. Use it for less urgent emergencies like EMI payment after job loss) for meeting everyday emergencies. Remember returns are irrelevant so one should park an emergency fund in an easily accessible and safe asset class. Safety, liquidity and simple tax rules
is what needed to park emergency fund.

How long one should maintain emergency fund??

Answer is lifetime.

Start investing 5-10% of your income as Emergency fund.

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