Keeping an emergency fund is one
of the components of managing your finances. You never know when you might lose
your job or when you will make loss in your business and your regular income
stops. What will you do in such situation to fulfill your day-to-day needs and
household expenses and financial obligations? Withdraw from your investments or
borrow from friend / relatives or take a personal loan?
Monthly Expenses = Household
Expense
+ Education Expense
+ Loan EMI
+ Insurance Premium
As a thumb rule, you should keep aside 3 to 6 months
monthly expenses for emergency as contingency fund. So, in case of any
emergency, you can withdraw money from this fund and you need not borrow or
withdraw your investment. You can invest this money in Liquid Fund / Ultra
Short Term Fund of mutual fund or Savings cum Fixed Deposit (also known as
Savings Linked Fixed Deposit) where you have the flexibility to withdraw money
and can earn bit higher return / interest compared to keeping the money in your
savings account.
