Creating an emergency fund has emerged as the top financial goal in the current environment.
So what is an emergency fund?
It is the corpus available with you to save you from grave emergencies such as job loss, pay cuts, death of a family member or a medical emergency which is not covered through a health insurance plan. (eg. Treatment of Old parents who are without insurance cover).
Look at the Covid Pandemic and you will find that lot of people have suffered extra just because they did not plan for an emergency fund.
An emergency situation like job loss or pay cut may continue for several months. In such a situation you will not only have to manage your household expenses but also continue paying your liabilities like EMIs and credit card dues. Therefore, one should at least build an emergency corpus which can at take care of 3-6 months.
Where to park your money?
The primary objective of your emergency fund is to help you when you need it the most without any delay.
Don’t get carried away with a false security that your plot/property investments will serve you in emergency situation.
Some emergencies may give you just a day to prepare; therefore, your emergency corpus must be easily and quickly accessible in the form of cash or in the savings bank account.
We suggest that a part of the funds can also be invested in liquid mutual funds that invest only in money market securities and therefore carry low risk. FDs or RDs can also be considered.