Mutual Funds - Keep 24 Months' Expenses As Emergency Fund: Quantum Mutual Fund
30-Jul-2020
People who had at least six months’ worth of emergency funds in their kitty are navigating through this mayhem much better than most.
It’s been 126 days since India went into lockdown. At first, we rejoiced the fact that we get to skip our dreary commutes to office and get to spend more time with our families. But the going hasn’t been easy for us at all. Apart from physical and mental stress, many people had a financially tough tough as well. There were a lot of job losses due to downsizing. Many salaried folks had to face pay cuts. Despite the troubles, some managed to sail through these tough times better than others.
These were the people who had at least six months’ worth of emergency funds in their kitty. They are navigating through this mayhem much better than most.
"Better still, are those who took our founder, Ajit Dayal’s recommendation and set 24 months of expenses aside for unforeseen eventualities. Financial preparedness is something we have always advocated to our investors. And this was way before the pandemic hit us. Now it’s no longer optional... it’s critical," says Quantum Mutual Fund in a note shared with their investors.
Quantum said, in an ideal world, you would have 24 months’ worth of living expenses saved up in an emergency fund. Beginners to this concept can start with even one month, and then build it to two months, and keep going from there.
Building an emergency fund depends on a lot of factors like your income, your stream of income. ’How much to put aside in an emergency fund’ , is totally based on your lifestyle and nature. If you are a conservative person, you might want to keep even a higher sum to deal with contingencies. You can keep 36 month of your monthly expenses aside. Or, if you are very young with no financial obligations and dependents yet, you may set aside only six month of expenses for emergencies. Its a subjective decision.
Building your emergency corpus should be the priority. You must do it even before you decide to invest your money in a bank FD or mutual funds or stocks.