Better late than never - Building an emergency corpus today!

Emergencies are called so for a reason. They come unannounced, especially when least expected. Job loss, business loss, medical emergency, or death takes a heavy toll emotionally and financially. While no one can foresee an emergency, we can at least be financially prepared to face it. That’s why it is crucial to have an emergency corpus.

The importance of emergency corpus cannot be stressed enough. In situations where you are already dealing with mental or physical stress, the financial impact can be taken care of by an emergency fund. Moreover, it will protect and preserve your savings and long-term investment goals.

Why every household must maintain an emergency corpus?

An emergency can be big or small- say a household appliance breaks down beyond repair, and you have to shell a few thousands on a new one, or a job loss, where you will need to manage your monthly expenses, EMIs, and more for a few months. How do you deal with such a situation? An amount that can take care of at least 6 to 8 months of your expenses should be set aside as an emergency fund.

Should you hold the emergency corpus in cash?

An emergency corpus should be easily and quickly accessible in time of need. So, liquidity is important for an emergency fund. Some emergencies may allow you a few hours or days to arrange for funds. However, some emergencies may require the funds immediately. Therefore, it helps to keep some funds handy in the form of cash. However, the rest of the corpus can be invested in liquid solutions such as debt funds.

What makes debt funds suitable for creating an emergency corpus?

Debt funds offer liquidity and open-ended funds typically do not have a lock-in period.

Some debt funds are also less volatile and meant to serve as parking solutions. This way, the money parked as emergency corpus can fetch interest, instead of sitting idle. Most importantly, it facilitates investing through SIP, where you can invest some amount at regular intervals and build your emergency corpus.

If you do not have an emergency corpus, it is better to start building it so your life goals are not interrupted! Use a goal planner to begin today.

Take Udaan for your dreams!

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