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Where to invest your emergency funds

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Akshata Kamath
Akshata KamathJun 06, 2022 | 19:04

Where to invest your emergency funds

When life gives you expensive lemons every month, what do you do? Thinking of dipping into your emergency funds to get through the scorching heat? Don't do that.

We all have multiple life goals and it is overwhelming when you think of saving for your marriage, your car, your new home etc. Savings for all these goals can be postponed but there is one kind of saving that you cannot postpone ie emergency savings.

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WHAT IS EMERGENCY SAVINGS?

Emergency funds are funds set aside to help you get through really unexpected times when there are demands that pop up without any prior intimation. A sudden hospitalisation or illness, an impromptu decision that costs money, getting laid off from work, a sudden business crisis, contributing when a relative is in need etc. Life can throw many surprises and shocks your way, and just having a monetary fund will financially cushion you through testing times.

Here are 5 ways to invest your emergency funds: 

HOW MUCH EMERGENCY FUNDS SHOULD YOU HAVE?

Finance experts recommend having at least 6 to 12 months of your monthly expenses in your emergency savings fund. So if your monthly expenses are about Rs 30,000, you need a minimum emergency fund of about Rs 180,000 (30,000*6) to Rs 360,000 (30,000*12).     

WHERE TO PARK THESE FUNDS?

It is always better to have multiple layers of emergency funds lying at your dispense based on your situation. Say if you have elderly parents, it is always good to have some cash in your locker. Even if it doesn't give you any return, it can give you greater mental comfort.

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1. SAVINGS ACCOUNT 

Money saved in a savings account is safe, easily accessible, and also gets you about 4-7% interest income. Since you can access the money easily via your debit card and various UPI apps like Paytm and Google Pay, it is a safe mode to invest. You can invest about 25-50% of your savings in this account.

Your savings account can be accessed through an ATM. Photo: Getty Images

2. AUTO-SWEEP SAVINGS ACCOUNT / FIXED DEPOSIT 

This kind of account parks your excess funds in a fixed deposit and gives you a higher rate of interest at 6-8%. But since accessing it is not as easy as accessing a savings bank account, you can keep a portion of your savings here. Also, creating this in a different account is better since out of sight is always out of mind, which will help you avoid the temptation of spending this money.    

Liquid Mutual funds are a great investment option. Photo: Getty Images

3. LIQUID MUTUAL FUNDS

Liquid mutual funds help you park your money for short periods of time and give you a better return than a savings account, just like that of a fixed deposit. It also allows you to withdraw funds on the same day (or sometimes on the next day) without much of a hassle and without penalty.

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No matter where you save, just ensure that your money is easily accessible, secure, and liquid.

Last updated: June 07, 2022 | 13:04
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