Covid-19 second wave reiterates the need for building an emergency corpus

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The deadly second wave of Covid-19 has again highlighted the importance of having an emergency corpus. Pratibha Girish, financial planner, Finwise Personal Finance Solutions, says: “The pandemic has taught us that not having an emergency corpus can be anywhere from nightmarish to stressful. It is absolutely non-negotiable to start with an emergency corpus, before investing for any other goals.”

How should one manage to build an emergency corpus in these times?

Small and regular investments in this emergency corpus are highly needed. Protection of this emergency corpus in terms of capital should be the priority. It should not be to increase the capital by way of investing into volatile and risky asset classes like equity. It should always be kept liquid.

“The investor should not look at returns but only look at the availability of this emergency corpus in a few minutes whenever needed. Preferably liquid funds, certain saving accounts which give decent kind of saving interests. There are certain banks that offer lucrative interests by putting money in the saving account as well. So, these options should be explored so that accessing the emergency fund is never a challenge,” said Rachit Chawla, CEO and Founder, Finway FSC.

If you are starting to build an emergency corpus, Girish suggests arriving at the quantum, that is, minimum 6 months expenses plus medical emergency. “Stop all your other investments temporarily and start contributing towards building this corpus. Park them in funds that are liquid even if you have to compromise on the returns,” she adds.

What all constitutes to be a part of an Emergency Corpus?

Some portion of an emergency corpus can be kept in the savings account which is accessible all the time and yet giving a certain amount of interest on it.

Mrin Agarwal, Financial Expert, elucidates, “One should have 3-6 months of essential expenses kept aside in a combination of FD, liquid funds and also 25% in the savings bank account.”

Considering the second wave of Covid-19, which is more deadly than the first one, Girish recommends that an emergency fund should also consist of a medical emergency corpus, even if you have comprehensive health insurance. This is especially needed if you have aged dependent parents at home.