The 6-Month Rule of Survival
An emergency fund is a stash of highly liquid money set aside to cover the financial surprises life throws your way. These unexpected events can be stressful and costly—like the loss of a job, a debilitating illness, or a major home repair.
Financial experts globally agree on a baseline standard: You must have at least 6 months of mandatory living expenses saved in cash or highly liquid assets.
This does not mean 6 months of your income. It means 6 months of your bare-minimum survival expenses. This includes rent or home loan EMIs, groceries, utility bills, school fees, and insurance premiums. It excludes dining out, vacations, and luxury shopping.
Where to Park the Money
The purpose of an emergency fund is Capital Protection and Liquidity, not wealth generation. Never put this money in the stock market.
- 1. Liquid Mutual Funds: These funds invest in ultra-safe government securities. They offer slightly better returns than a savings account (around 5-6%) and allow you to withdraw money to your bank account within 24 hours.
- 2. Sweep-in Fixed Deposits: FDs that are linked directly to your savings account. You earn FD interest rates, but if you swipe your debit card for an emergency, the FD automatically breaks instantly without penalties.
How to Build It Without Stress
Seeing a target of ₹3 Lakhs or ₹5 Lakhs can be intimidating. Don't try to build it overnight.
- Start Small: Aim to save your first ₹50,000 as a micro-buffer.
- Automate the SIP: Our calculator tells you the exact monthly SIP needed to reach your target in 12 months. Treat this SIP like an unavoidable EMI.
- Use Windfalls: Whenever you receive an annual bonus, tax refund, or cash gift, inject 100% of it directly into the emergency fund until it hits the 6-month threshold.