Help in building an emergency fund

POSTED BY Raj ON February 20, 2013 1:18 pm COMMENTS (8)

Hi Experts,

First of all, I would like to appreciate for all your efforts in helping others in educating about financial products and help them build a strong financial base. Truly commendable!

My Question: 

I would like to create Rs. 3 lakhs of emergency fund systematically over a period of 2-3 years.  I can allocate a max of 7K per month. Can you please help me with pointers to achieve this goal. There are 3 options that I was thinking of:

1. Start a Debt: liquid fund (Escorts Liquid and  Birla Sun Life Floating Rate ST)

2. Start Debt: Short Term (Templeton India Short-term Income Inst) and Debt: Ultra Short Term (HDFC Floating Rate Income LT)

3. Start a Recurring Deposit of 7K every month

Please let me know if my approach is good and also which option should I ideally go with. Also if there are other way of building an emergency fund, appreciate if you could share that as well please.

Thanks again and looking forward to your reply.



8 replies on this article “Help in building an emergency fund”

  1. Dear Raj, we ‘ll wait for an update from you.



  2. Raj says:

    Hi Ashal,

    Thanks for your reply again. My only investment is an LIC Jeevan Anand which I took about 3 years ago (tenure: 35 years, sum assured: 52 lakhs, yearly premium 1.3 lakhs) thinking that if I take a 35 years policy, compounding would work in my favour. After reading through this blog, I have realized that it was a mistake. Hence planning for a term insurance+PPF in the coming months and then into equities slowly but surely.

    I am guessing my surrender value is not going to be anything more than 60-70K. I still have to visit the branch and confirm. Ideally I wouldn’t want to surrender it for a low value of 60-70K as I have invested a huge amount already (of about 3.9 lakhs). Hence planning to make it paid up. Once I visit the branch and get the final details on the surrender value, I would decide on either surrendering it or making it paid up.


    1. Raj, If you have claimed 80C deduction with the policy then if you surrender they will be cancelled and you need to pay tax on these when you surrender. So paid up is the best option.

  3. Dear Raj, are you having any bank FDs, RDs, shares, MF units, LIC policies, NSCs……? if yes is your answer, what’s the current valuation of your investments or surrender value in case of LIC policies?

    Please asnwer.



  4. Raj says:

    Thanks both of you for your prompt replies.

    I have a home loan+ monthly expense (close to 50K a month). Hence decided to save 6 months of my total expense (i.e. 3 lakhs) as emergency fund. i.e to basically take care of all my expense just in case of any unforeseen emergency situation (job loss/some medical emergency etc)

    Since I can invest only 7K per month, I decided to raise emergency fund slowly in the next 2-3 years.


    1. See if you can scrounge around some money to build at least 1 lakh or so immediately and then add on to it as you have suggested.

  5. Dear Raj, can you elaborate more on your exact needs? Why in next 2-3 years & why not in next 1Y?



  6. Returns are not important for a emergency fund. Safety and liquidity is. Not clear what emergency you have in mind. If it is the usual rainy day money, simply keep about 1 lakh or so cash in a savings bank account and rest in a liquid fund.

    Don’t use Escorts AMC. It is a dinosaur.

    Use Reliance liquid. If I am not wrong you can use a ATM care to withdraw,
    I use quantum liquid which is good for online withdrawals.

    No need to use RDs. They are not liquid enough for emergencies.

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