How to build an emergency corpus

An emergency fund is an essential corpus that one must keep aside to meet unanticipated financial shortfalls that may arise

  • Publish Date - June 18, 2021 / 12:08 PM IST

The coronavirus-induced disruptions have made us realise the importance of building a robust emergency fund. An emergency fund is an essential corpus that one must keep aside to meet unanticipated financial shortfalls that may arise.

The Money9 Helpline hosted Kalpesh Ashar founder, Full Circle Financial Planners, to help our callers navigate through financial distress.

Here are some questions:

Samerjeet Sarkar, Ballygunge: I am about to retire from my government job early next year. I am left with little disposable income after household expenses. I don’t have an emergency fund. Should I liquidate a few FDs to build an emergency fund? What are other options for building an emergency fund?

Ashar:  I suggest you review your existing investments be it stocks and mutual funds. Also, assess your insurance portfolio. Insurance is most important in the chronology of financial planning. But sometimes we have unwanted policies in our portfolio, that might not give us enough coverage. You must seek the advice from an expert on your insurance and investment portfolio. This will help you in liquidating any unwanted clutter in your portfolio. From there you can generate a corpus of 6 to 12 months. You can divert some amount to smart FDs which can be easily be converted into contingency funds.

Pratik Joshi, Pune: What is the best option to build an emergency fund?
1. Liquidate MFs & put the money in liquid funds
2. Investing maturity amount of RD in liquid funds
3. Accumulating money in a savings account

Ashar: I would agree that you must review the mutual fund. There are certain funds that might have not performed well for some time. You can book your profit from there for your contingency fund. You should not tend to be lured by greed. So try to divert your assets into secure assets. You can also keep it in savings. Short-term FDs and savings have almost the same interest rates. Savings are more accessible.

Shekhar Salunke: Hello Madam good evening, I have kept one separate Demat account for IPO, is it a good idea if most of the IPO not subscribe then this money can use as an emergency fund?

Ashar: It is a very unique approach. It all about discipline, both are diverse mindsets.

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