risk
Where The Emergency Fund Lives
The rule
Keep your emergency money where you can reach it in a day, like cash in a drawer. Not sleeping in a savings account, and never in shares.
Where it flips
Chasing a little extra return can tempt someone to move the buffer into a debt fund with lock-ins or risk. That defeats the whole point. So accept a modest return and value reach-it-in-a-day access above all.
An emergency fund is there to be reached fast, when income stops or a crisis hits. Its whole job is quick access, not high returns. Left in a plain savings account, it earns almost nothing. Put in shares, you may be forced to sell after a market fall, exactly when you need the money. The sensible home is a split. Part in a sweep-in fixed deposit that turns to cash when you spend. Part in a liquid fund that pays out within a day. Aim for about six months of your expenses, sized to how steady your income is.
A worked example
Haridya keeps ₹3 lakh of her ₹3.6 lakh buffer in a sweep-in FD at 6.5%. She keeps ₹60,000 in a liquid fund. When she loses her job, both are in her hands within 24 hours. [illustrative]
How to spot it
- ·emergency money sitting in shares or ELSS
- ·buffer asleep in a 3.5% savings account
- ·no cash you can reach within a single day
Monika Halan · Let's Talk Money