An emergency fund is designed to cover a financial shortfall when an unexpected expense crop up.
An emergency fund is an account that is used to set aside funds to be used in an emergency. Every individual and family must have their own reserve of money to meet emergency. Such a reserve is called emergency fund.
What should be the ideal size of the emergency fund? Thumb rule for a normal emergency fund.
One year’s normal living expense, rounded off to the next higher Rs.1Lakh
Normal living expenses: Rs.30,000/- per month
Emergency Fund: Rs.4Lakhs
Set aside a proper emergency fund so that you don’t have to completely panic if your car breaks down or if you lose your job or a significant medical expense or if you suddenly need to replace a hot water heater or something you’ve never dreamed of.
An excellent strategy for deploying emergency fund
Place the fund in liquid, short term floating rate, ultra-short bond or Short term mutual funds.
Transfer the capital appreciation to a low cost, diversified equity index fund.
Your capital remains intact and is available in an emergency.
Overall, your emergency fund can give an excellent return and grow quite satisfactorily, in a 5 to 10 years time frame.
Schedule a call today to know more about an Emergency Fund