Amid the ongoing pandemic, a survey titled “India’s Money Habits” by Finology, a personal finance platform, reveals that 75% of Indians lack savings for unexpected expenses, raising concerns about potential defaults on equated monthly installments (EMIs) in case of sudden job losses. An emergency fund considered a fundamental savings category, is recommended to be three to six times one’s monthly income to handle unforeseen emergencies like job loss or medical issues.
For creating an emergency fund, individuals should evaluate monthly mandatory expenses like household costs, children’s education fees, EMIs, and insurance premiums. A portion of these mandatory expenses can be kept in fixed deposits or liquid funds. Ajinkya Kulkarni, Co-Founder and CEO of Wint Wealth recommends parking 12 months of expenses in a bank fixed deposit or a savings account with a sweep-in facility. The sweep-in feature ensures that when funds in a Savings Account are low, the bank transfers the deficit from the Fixed Deposit to the Savings Account without affecting the interest rate. Alternatively, liquid mutual funds, investing in high-quality bonds maturing within 91 days, offer slightly better returns than fixed deposits. They are suitable for parking lump-sum amounts for short durations, such as making a down payment for a flat three months later.