Create Emergency Fund to Tide Over Any Exigency

An emergency or contingency fund can be one of the core components of an investment portfolio. This will help to tide over any financial upheaval and ensure access to funds in liquid that is immediately available.

First things first, calculate the monthly expenses on household expenses, equated monthly instalments (EMIs), children’s school fees, insurance premiums, house rent, and other relative expenses. The emergency corpus has to be at least for three-six months of such family expenses. However, aim to start small and work the way up to half a year’s worth of spending.

The money for the emergency fund should be kept aside and parked in a bank fixed deposit (FD). Consider starting a recurring deposit (RD) in a bank or a systematic investment plan (SIP) in a short-term debt fund. Taking into account individual needs, one may consider investing in overnight mutual funds or liquid mutual funds. A higher return than a savings banking account can be expected in this case.

Ideally, opt for a suitable health insurance plan, too. Check the sum assured, the claim settlement ratio, and exclusions before zeroing in on a health insurance policy.

In addition, go for a basic term plan that provides a higher cover at a lesser premium. 

After some time, increase the amount directed as a contribution towards the emergency fund by at least 1 per cent or a specific sum, until one has reached the savings goal. 

Considering that unplanned expenses are always unexpected, it remains important to be prepared to cushion any inevitable event in life. 

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