Learn · Emergency fund first
Where to keep your emergency fund
Savings account, sweep-in FD or liquid fund: what each is good at.
3 min read
Three jobs for this money
Your emergency fund needs to be safe, quick to reach, and not shrink. Earning a lot comes last. Here are the usual places, and the trade-offs.
Savings account
Instant access and safe: deposits are insured up to ₹5 lakh per bank by DICGC. The interest is low, often less than inflation. Good for the first month of expenses.
Sweep-in FD
Money above a set balance moves into a fixed deposit automatically and comes back when you need it. Close to instant, with FD interest on most of it. Ask your bank if it offers one.
Liquid fund
A mutual fund that lends for up to 91 days. Money usually reaches your bank the next working day. Some liquid funds let you take out up to ₹50,000 (or 90% of your balance, whichever is lower) within minutes.
Myth
A liquid fund can't lose money.
Fact
It's very low risk, but its value can still dip. Falls are rare and small. It's not insured like a bank deposit.
Where it goes
A ₹1.5 lakh emergency fund, split
- Savings account₹25,000
- Sweep-in FD or liquid fund₹1,25,000
About one month of expenses where you can reach it instantly, the rest earning a little more. Liquid fund gains are taxed at your slab rate when you withdraw.
Next working day
When liquid fund money usually reaches your bank
If you ask before the cut-off on a business day.
Words from this lesson
- DICGC: The body that insures bank deposits up to ₹5 lakh per bank.
- Fixed deposit: Money left with a bank for a set time at a fixed interest rate.
- Instant redemption: Getting money from a liquid fund within minutes.
- Money market fund: A debt fund that lends for up to one year.
- Overnight fund: A debt fund that lends for just one day.
- Sweep-in FD: A savings account that moves extra money into an FD automatically.
Next in Emergency fund first: Building it from ₹1,000 a month