Emergency fund: how much, and where to keep it

Last reviewed October 2026

The short answer

Most families should keep six months of essential expenses as an emergency fund, and closer to twelve months if their income is uncertain or they are retired. Keep it somewhere safe and quick to reach: a little in your savings account, and the rest in a fixed deposit or a liquid fund, not in equity.

The exact amount depends on three things: how steady your income is, how many people depend on it, and what insurance you already have. The aim is not to earn a lot on this money. The aim is that it is there, in full, on the day you need it.

How to work out your number

Start with what your household must spend each month, not what it usually spends. That means rent or home-loan EMI, groceries, school fees, utilities, insurance premiums, medicines and any support you send to parents. Holidays, shopping and dining out can pause in a bad month.

Say a family in Pune spends ₹1.2 lakh a month, of which ₹80,000 is essential. Six months of essentials is ₹4.8 lakh. If both partners earn, jobs are stable and everyone has health insurance, ₹4.8 lakh is usually enough. If only one person earns, or that person is in a volatile industry, we would lean towards nine months, about ₹7.2 lakh.

Then ask what insurance would not cover, such as a hospital co-payment or a sudden trip to look after a parent. If you can picture a specific cost, add it.

Where to keep it

An emergency fund has one job, which is to be available at full value whenever you need it. That rules out equity funds. Markets can fall 20–30% in the same months when jobs are lost, and selling then turns a temporary dip into a permanent loss.

We usually suggest splitting it into layers:

• One month of expenses in your savings account, for anything that needs paying today.
• The rest in a fixed deposit, a sweep-in FD or a liquid fund, which you can reach within a day or so.

Between FDs and liquid funds, the difference in earnings is usually small. Liquid funds have one practical edge: tax is due only when you withdraw, while FD interest is taxed every year whether you touch it or not. FDs have the edge of being familiar, and bank deposits are insured up to ₹5 lakh per depositor per bank. Either is a sensible home for this money.

Here is a trade-off we should be open about. As a mutual fund distributor, we earn very little on liquid funds and nothing at all on your FD or savings account. We earn more when money sits in equity funds. We still suggest keeping your emergency fund out of equity, because that is what the money is for.

What we’d usually suggest

• Write down your essential monthly spend. Three months of bank statements will show you the real number.
• Pick your multiple: six months as a starting point, nine to twelve if income is irregular, you are the only earner, or you are close to retirement.
• Build it before you increase your investments. If you are starting from zero, a monthly SIP into a liquid fund or a recurring deposit can fill it over a year.
• Keep it in a separate account or folio, so it does not quietly get spent on a holiday or a gadget.
• Make sure your spouse knows where it is and how to access it. Check that nominations are in place.
• Review it once a year. Expenses grow, and a fund that was enough three years ago may not be today.
• Refill it after you use it, before restarting other goals.

When it’s different

Business owners and the self-employed often need twelve months or more, because income can stop without notice. Keep the family’s emergency fund separate from the business’s working capital, so one bad quarter at work does not touch the household. We talk about this often with the entrepreneurs we work with.

Retirees have no salary to fall back on, so a year or two of expenses in safe, accessible places makes sense. This often sits within a wider plan where the next few years of withdrawals are kept away from market swings.

NRIs may need two emergency funds: one where they live, and a smaller one in India for parents’ medical needs or property repairs.

If you carry expensive debt, such as credit card balances, it often makes sense to keep a smaller emergency fund for a while and clear that debt first.

CurateMyMoney is an AMFI-registered mutual fund distributor (ARN-184811). Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. Tax rules mentioned are as applicable at the time of writing and may change; please check the current rules or consult a tax professional before acting.