You don’t need a lecture from us on the importance of creating an emergency fund. You already know after surviving the pandemic that an emergency can occur at any time. And, when it does, it directly impacts our jobs and finances. This is why it’s best to stay prepared!
Furthermore, when creating an emergency corpus, people often think of setting aside a chunk of their salary or breaking into their hard-earned savings. However, they often forget that mutual funds too can help here.
How? Certain mutual funds provide investors complete liquidity whilst earning them significant returns. A portion of such earnings can be moved into your emergency corpus if and when needed.
A 3-step approach to building an emergency fund
Suddenly putting aside lakhs of rupees in an emergency fund can seem like a mammoth task. Sure, if you have that kind of disposable income, you can. But, if you can’t, then too, get the ball rolling by following this step-by-step approach to creating a corpus for emergencies.
Additional Read: Is it Necessary to Revise Your Financial Plan?
Start with small deposits
Begin by deciding on an amount you can comfortably keep aside each month. Remember, building your emergency corpus with smaller amounts over a few months will make saving more palatable and sustainable. Besides, saving for emergencies will inculcate better financial discipline and shield you from altering your lifestyle.
Keep emergency savings separate
Do not mix your emergency savings with everyday expenses. The best way to keep them secure is by segregating them into different account(s). Metaphorically speaking, you must forget this pot of gold exists. Doing this will save you from depleting your emergency savings.
Don’t lose interest on emergency savings
Emergency corpora typically carry a significant amount of money. Letting them sit idle is not a good practice. Sure, you can allow a chunk to stay in your emergency savings account, but for the rest, you must invest in a lucrative instrument that doesn’t have a lock-in.
Ideally, you can deposit a chunk of your emergency savings into short-term debt funds, also called liquid mutual funds. These funds invest only in fixed-income instruments like government bonds and securities, treasury bills, and commercial papers.
They have a maturity of up to 91 days, and you can withdraw them when needed within 24 hours. Moreover, these funds are the safest interest-earning instruments within this category of mutual funds.
Additional Read: How and where to keep an Emergency Fund?
Our final verdict: it’s not that hard to build an emergency corpus, especially if you:
- Plan ahead of time.
- Start with small deposits kept separately.
- Invest a chunk of funds in safe instruments like debt-linked mutual funds.
Do you want to invest a part of your emergency corpus into debt or any other type of mutual fund? If yes, then invest online with Tata Capital Moneyfy app. We extend a user-friendly web portal that lets you sort and compare several varieties of mutual funds and invest in the one best suited to your financial goals.
If you don’t want to invest a lump sum, you can also start a SIP through our web portal for as little as Rs. 500 per month.
So, don’t wait any longer! Earn healthy returns by applying for top-rated mutual funds through Moneyfy today!