Personal FinanceBeginner
Emergency Fund
Cash set aside to cover several months of essential expenses if income stops.
Detailed explanation
It exists to absorb job loss, medical bills or urgent repairs without selling long-term investments at a bad time or borrowing at high rates. It is held in instruments that are safe and instantly accessible, which means the return is deliberately modest.
Formula
Target = Monthly essential expenses × 6
Example
Essentials of ₹60,000 a month imply a ₹3.6 lakh buffer in a sweep-in deposit or liquid fund.
Why it matters
Without it, a single bad month forces you to liquidate equity during exactly the wrong market conditions.
Key points
- Three to six months for salaried, nine to twelve for variable income.
- Prioritise access and safety over yield.
- Rebuild it immediately after any drawdown.
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Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.