Why an emergency fund comes first
Without a buffer, a job loss or medical event forces you to break investments at the worst possible time - often during market downturns when prices are low.
An emergency fund is what lets all your other planning actually work.
How much to keep
The standard rule is 3–6 months of essential expenses - rent, EMIs, food, school fees, utilities, insurance premiums.
If your income is irregular (freelance, business), aim for 9–12 months. Single earner with dependants? Lean toward the higher end.
Where to park it
Liquid mutual funds or sweep-in fixed deposits give you 6–7% returns with same-day or next-day access. Don't keep emergency money in equity - it has to be there when you need it.
Key takeaways
- Build to 3 months first; expand to 6 once that's done.
- Liquid funds > savings account for parking - almost the same access, much better returns.
- Top it up annually as your expenses grow.