Emergency Fund: Want to rebuild your emergency fund without disturbing your SIP? Follow this easy method..

Last year, Rajiv (name changed) withdrew Rs 3 lakh from his emergency fund. Now his monthly income is Rs 80,000, of which Rs 60,000 goes towards household expenses and Rs 20,000 towards SIP. Now, the question before Rajiv is how to create an emergency fund again without stopping SIP.

In response to this question, Prasanna Pathak, Managing Partner, Wealth Co. Asset Management Pvt Ltd, told Mint that the emergency fund should be calculated not from your salary but from your monthly expenses. In this case, Rs 60,000 is the monthly expenditure.

Short-term target: Rs 1.8 lakh (3 months' expenditure)

Medium-term target: Rs 3.6 lakh (6 months' expenditure)

You will have to set aside 20% to 40% of your annual income.

How to create a fund without stopping SIP?

Slight cuts in expenses: Save Rs 5,000 to Rs 10,000 every month from the Rs 60,000 expenditure. Put a break on eating out, online shopping, or subscriptions.

Make full use of additional income: Put money from bonuses, gifts, and tax refunds directly into the emergency fund.

Slight changes in SIP (if needed): Reduce SIP by Rs 5,000 for 3 months and add Rs 15,000 every month by saving Rs 10,000 from expenses. You can start the full SIP again by accumulating Rs 45,000 in 3 months.

Where to keep this money?

Keep 30% in sweep-in FD: Along with the facility of instant liquidity, good returns are also available.

70% in liquid mutual funds: These can be redeemed in one day (usually T+1) and are also tax-beneficial.

Keep separate buffers for small and big expenses.
Once your main emergency fund is ready (Rs 1.8 lakh), create 2 specific mini-buffers:

Medical buffer: Rs 50,000 – Rs 1 lakh (if health insurance does not cover the entire amount)
Home repairs/appliances: Rs 20,000 – Rs 50,000
Your financial plan
Goal: Rs 1.8 lakh (3 months), Rs 3.6 lakh (6 months)
Timeline: 2–4 years, depending on your saving habits
Where to keep: 30% sweep-in FD, 70% sweep-in FD Liquid fund
Do you want to stop SIP? – No, just reduce it a little if needed
Do you want to create separate buffers? – Yes, for medical and home repairs

Disclaimer: This content has been sourced and edited from News 18 hindi. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.