How to invest emergency corpus from where you can withdraw funds easily

An emergency fund is your financial backup plan in case of unforeseen circumstances. This emergency fund can shield your long-term savings during exigencies.

Here is a look at how much money you should have in your emergency corpus and where you should invest it.

How big should your emergency fund be?

Financial planners usually suggest keeping aside six months' worth of expenses in your emergency fund. However, as with anything personal finance, this thumb rule can vary according to your own circumstances.


First things first, let us talk about health insurance. A health insurance policy of your own or a company given one can lessen the blow of a medical emergency, especially if it is a cashless insurance policy. However, you will have to have enough saved for instances where you or a family member may need doctor's visits, medical tests and even medicines.

Also read: 4 safe investments that offer higher returns than bank FD interest rates

Another factor that can play a part in deciding the size of your emergency fund is job security, i.e., how safe your job is, and how many earning members are there in your family.

Next, consider regular money outgoes like loan equated monthly instalments (EMIs), insurance premiums, mutual fund systematic investment plans (SIPs) and so on. The more such expenses you have bigger your emergency fund should be to take care of these.

Where to invest your emergency corpus

Before you read any further, keep in mind that when building your emergency corpus, returns take a back seat. What is important is the liquidity of the financial products you choose - they have to be available and easily accessible at short notice. So avoid investment products with lock-ins and those where you will be charged a penalty for premature withdrawals.

"The amount of money that you keep aside to create your corpus of emergency fund, is actually months worth of expenses. A Savings Account serves as a good option when making such an investment. However, it is extremely important to take into consideration the interest rate offered by the bank where you will eventually park your funds," as per the HDFC Bank website.

Also read: Want to invest for less than one year? Choose from these 5 short-term investment options

One of the advantages of a savings account is that you can withdraw any time of the day and any day using your debit card from an ATM. Just make sure that your debit card has adequate cash withdrawal limit. Cash withdrawal limits vary between banks and the type of savings account you have. It can range from Rs 20,000 to 50,000 a day.
You can consider going for a sweep-in account where excess funds are automatically transferred into a fixed deposit and earn higher returns.


"A sweep-in facility ensures that whenever funds in your Savings Account are running low for a purchase or transaction, the bank will transfer the deficit amount from your Fixed Deposit to your Savings Account without affecting your interest rate in your Fixed Deposit. The sweep-in facility provides the same liquidity as a savings or current account, benefiting from the high-interest rate of a Fixed Deposit. It gives you the ability to pay for emergencies without having to liquidate your Fixed Deposit," states the HDFC Bank website.

If your bank does not have a sweep-in facility, you can put the money in a fixed deposit that can be broken anytime.


Another option is the short term debt fund category. "As far as liquidity of emergency funds is considered, liquid funds permit instant redemption of up to Rs. 50,000 or 90% of the invested amount, whichever is lower, per day per scheme. For e.g., if an investor has a balance of Rs. 50,000 in their liquid funds, they can only withdraw up to Rs. 45,000. One needs to put in a redemption request to make the withdrawal. An investor can opt for the 'instant redemption facility' on the fund's app or website. Make sure to choose the 'instant redemption facility', else the money would be transferred the next day. Note that the instant redemption facility is not available offline," states the Franklin Templeton India website.

According to the Association of Mutual Funds in India website: Liquid Funds, as the name suggests, invest predominantly in highly liquid money market instruments and debt securities of very short tenure and hence provide high liquidity. They invest in very short-term instruments. The aim of the fund manager of a Liquid Fund is to invest only into liquid investments with good credit rating with very low possibility of a default. The returns typically take the back seat as protection of capital remains of utmost importance.

Don't build and forget

Reviewing your investments and savings is a golden rule in financial planning. In that same vein, you need to revisit your emergency fund regularly to adjust for inflation, lifestyle changes, increase in family members and more. This review should be an annual affair.