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Emergency fund: How much to invest & where

  • Writer: Manan Mehta
    Manan Mehta
  • Nov 19
  • 3 min read

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An emergency fund is your financial life jacket — 3 to 12 months of expenses kept accessible for job loss, medical emergencies, urgent repairs, or income disruption. Without it, you'll raid retirement savings, break investments at losses, or take high-interest loans during crises.


How Much Emergency Fund Do You Need?

Calculate based on your stability and dependents:​

Profile

Recommended Amount

Single, salaried, stable job

3-6 months expenses

Married with dependents

6-9 months expenses

Self-employed/freelancer

9-12 months expenses

Single income family

9-12 months expenses

Calculate Your Amount:

Monthly essential expenses: Rent/EMI + groceries + utilities + insurance + transport + minimum debt payments

Exclude: Entertainment, dining out, shopping, travel​

Example:

  • Monthly essentials: ₹50,000

  • Profile: Married with child

  • Emergency fund needed: ₹50,000 × 6 = ₹3,00,000​


If you want someone to assist you with your investments, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com


Where to Invest Your Emergency Fund

Emergency money needs three qualities: safety, liquidity, and reasonable returns. Here's the optimal allocation strategy:​

Tier 1: Instant Access (25-30% of Emergency Fund)

Savings Bank Account

  • Amount: ₹50,000-1,00,000

  • Access: Immediate via ATM/UPI

  • Returns: 2.5-3.5%

  • Use case: Expenses needed within 24 hours​

Tier 2: Next-Day Access (60-70% of Emergency Fund)

Liquid Mutual Funds

  • Amount: Majority of emergency corpus

  • Access: T+1 (next business day); instant up to ₹50,000 or 90% (whichever lower) on select funds

  • Returns: 5.5-7% annually

  • Risk: Extremely low (invests in 91-day maturity instruments)

  • Tax: Gains taxed at income slab rate​


Why Liquid Funds Beat Savings Accounts:

  • 2-3% higher returns (₹6,000-9,000 extra annually on ₹3 lakh corpus)

  • Still highly safe (invest in govt securities, AAA bonds)

  • Instant redemption available on most platforms up to ₹50,000​

Tier 3: Short-Term FDs (Optional 10-20%)

Fixed Deposits (Laddered)

  • Amount: 10-20% if you want absolute certainty

  • Access: Premature withdrawal with 0.5-1% penalty

  • Returns: 6-7.5%

  • Structure: Create 3 FDs with staggered 3/6/9 month maturities​

FD Laddering Example:

  • ₹40,000 in 3-month FD

  • ₹40,000 in 6-month FD

  • ₹40,000 in 9-month FD

One FD always maturing within 3 months for penalty-free access.​

Recommended Allocation Strategy

For ₹3,00,000 Emergency Fund:​

  • ₹60,000 in savings account (instant access)

  • ₹2,00,000 in liquid mutual fund (T+1 access, some instant)

  • ₹40,000 in short-term FD or additional liquid fund

For ₹6,00,000 Emergency Fund:​

  • ₹1,00,000 in savings account

  • ₹4,00,000 in liquid fund

  • ₹1,00,000 in laddered FDs

What NOT to Use for Emergency Fund

❌ Equity mutual funds/stocks - Volatile, might be down 20-30% when you need money​❌ PPF - 15-year lock-in, early withdrawal restrictions​

❌ Real estate/gold - Takes weeks to sell, illiquid​

❌ Crypto - Highly volatile, not emergency-appropriate​

How to Build Your Emergency Fund

Step 1: Calculate required amount (3-12 months expenses)​

Step 2: Open separate savings account dedicated to emergency fund​

Step 3: Set up automatic monthly transfer:

  • Target: ₹3 lakh in 12 months = ₹25,000/month

  • Target: ₹3 lakh in 24 months = ₹12,500/month​

Step 4: Once savings account reaches ₹50,000-1 lakh, start moving surplus to liquid fund​

Step 5: Continue until full emergency corpus is built

Key Principles

  1. Keep it separate - Don't mix with regular savings or investments​

  2. Don't invest aggressively - This is insurance, not wealth creation​

  3. Prioritize access over returns - You need liquidity more than 2% extra return​

  4. Build it BEFORE investing - Emergency fund comes before SIPs, stocks, or aggressive goals​

  5. Replenish after use - If you tap emergency fund, restore it immediately​

Quick Decision Framework

Use liquid funds if:

  • You're comfortable with T+1 access

  • You want 2-3% higher returns than savings

  • Corpus exceeds ₹1 lakh

Use only savings account if:

  • You need 100% immediate access

  • Uncomfortable with any market-linked product

  • Corpus under ₹50,000

Add FDs if:

  • You want absolute return certainty

  • Can tolerate 0.5-1% premature penalty

  • Corpus exceeds ₹5 lakh


Bottom Line

Emergency fund = 3-12 months expenses based on your job stability and dependents.​

Invest 70% in liquid mutual funds (higher returns, T+1 access) + 30% in savings account (instant access).​

Build it first. Build it separate. Build it safe. Everything else—investments, wealth building, aggressive goals—comes after this foundation is secure.

Start today: Calculate your expenses, open liquid fund account (Groww/ET Money/Kuvera), set automatic transfer. Your 6-month-older self will thank you.


If you want someone to assist you with your investments, feel free to contact us. Our team of experts will be happy to help. You can also email us at help@reymanwealth.com




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