One needs to be prepared financially for emergencies. It could be an earmarked fund which will not be touched for any other expense. An emergency corpus could be six months’ take home salary of the individual.
Emergency corpus must be easily and quickly accessible in the form of cash or in the savings bank account. A part of the funds can also be invested in liquid mutual funds that invest only in money market securities and therefore carry low risk. FDs or RDs can also be considered.
Liquidation of corpus
While cash is the easiest to access, withdrawal of liquid funds is also not so cumbersome. One can place a redemption request on the mutual fund portal by quoting the folio number within the prescribed cut-off time and get the funds credited to the registered bank account on the same business day. Some fund houses also provide ATM facilities for withdrawal from liquid funds. Premature closure of FDs is also possible with some penalty levied by the bank.
Health insurance cover
In case of a medical emergency, a health insurance cover comes in handy and can help you save your emergency funds if the cover is sufficient. A hospital providing a cashless facility does not even require actual payment of bills and reimbursements.
Points to note
- Withdrawing cash from a credit card is not the best option as it has a very high rate of interest.
- It is important that the spouse or caregiver has knowledge of the emergency corpus and can take action if needed on your behalf.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)