Plan for any financial uncertainties with an Emergency Fund
The Covid-19 pandemic has affected us in multiple ways. While the impact of this virus on our personal lives is immeasurable, our financial lives are also impacted due to this uncertainty. While we may not be able to foresee such events, we can definitely plan for the financial uncertainty that comes with them. One of the most efficient ways to do this is to create an Emergency Fund.
What is an Emergency Fund?
An emergency fund is essentially keeping some part of your income aside for unforeseen events that might impact us financially in the future. Think of it as a helmet that you wear when you are riding the bike or a seatbelt you wear while driving the car. It is necessary to wear a helmet or a seatbelt because it protects you from getting seriously injured. Similarly the Emergency Fund protects you from getting financially injured.
Let’s say you are investing today for your future goals such as buying a house, saving for your child’s education, etc. In such a case, if you come across a situation like the pandemic, it is highly likely that you will have to compromise with your future goals to take care of ongoing financial emergencies. But if you have an emergency fund, you will be protected from such cases as this fund will help you deal with unplanned expenses without impacting your future goals.
Here are some tips which will help you get started with building your emergency fund:
- Keep aside at least 6 months of your expenses as an emergency fund. For example, if your monthly expenses are ₹10,000, then set aside at least ₹60,000 to create an emergency fund.
- For most of us, it may not be possible to invest this amount at one go, so you can opt for monthly SIPs and invest every month to accumulate the amount that you need.
- Make sure to replenish your emergency fund if you use it to deal with any financial emergency.
- Review your expenses every year and increase your emergency fund as your expenses increase.
Now that we understand what an emergency fund is, let’s see where you can invest this amount.
Liquid Fund — A way to save for Financial Emergencies
We now know how emergency funds can help us deal with financial uncertainty. But why is it so important to keep this amount aside instead of keeping it in your savings account? When you keep some extra money in your savings account, it might get used for some or the other expenses. Hence, by investing the amount of the emergency fund separately, you will be able to earmark the amount for financial emergencies only and not for any other expenses.
One of the ways to create this Emergency Fund is to invest in Liquid Funds. Liquid Funds are a type of mutual funds that are meant for short term investments and can act as a substitute for your savings account. These funds do not invest in the stock market but your money is invested in safer instruments such as government and bank securities.
Here are the benefits of investing in liquid fund:
- Potentially better returns than the savings account
- No Lock in period^
- No Minimum balance requirement
- Invest with as low as ₹100
- Instant withdrawal up to ₹50,000*
As your money in liquid funds is easily accessible and earns potentially better returns than the savings account, it can be used to create an Emergency Fund.
Create your emergency fund today to protect your future goals from any financial uncertainties.
^ Liquid Funds do not have any lock in period but a very small exit load of 0.007%, 0.0065%, 0.006%, 0.0055%, 0.005% and 0.0045% is applicable if you withdraw your money within 1 day, 2 days, 3 days, 4 days, 5 days and 6 days respectively.
* You can withdraw an amount of up to 90% of your investment or ₹50,000 per day whichever is lower.
Mutual Fund Investments are subject to market risk. Please read the scheme information document carefully before investing.
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