Emergencies—from a broken bone to a layoff—are a fact of life. When you’re faced with life’s unexpected events, you should be ready.
An emergency fund is an account used to set aside funds needed to cover the financial surprises life throws your way such as a job loss, accident, temporary health issues, flooding due to heavy rains resulting in damage to property or vehicle or any other natural disaster etc. These unexpected events can be stressful and costly. It is better to be prepared.
How much money is needed as Emergency Fund?
Atleast 4 – 6 months expenses.
What will happen if one doesn’t have emergency fund?
You will be forced to liquidate your long-term investments to meet expenses during emergencies. This will only affect your long-term financial goals for which you are investing.
Hence, it is always prudent to maintain an emergency fund separately.
Where emergency fund money can be invested?
There are few options:
- Savings Account (Bank)
- Liquid Fund (Mutual Fund)
Savings Account offers 4% interest rate.
Liquid Fund offers interest rate equal to or slightly better than prevalent FD rate.
In view of the liquidity & better rate of return, it is better to choose Liquid Fund for investing Emergency Fund money.
How to invest in Liquid Fund?
Investment can be done online in 2 minutes & redemption (selling) also can be done online in same time. Upon redemption, money will be credited to your Bank account directly.
It might be difficult to accumulate 6 months expenses at once. Instead, you can keep accumulating some amount every month in liquid fund and top it up whenever you have surplus. It is important to accumulate Emergency fund ASAP.
Please feel free to contact me if you have any queries.
Thanks & Regards
Vinay Kumar Laxman
Certified Financial Planner &
AMFI Certified Mutual Fund Advisor