How big should your emergency fund be — and where should it sit?

By Abhishek Sambangi · Updated 19 September 2026 · 4 min read

Short answer. Six months of essential expenses, EMIs and insurance premiums is the right default for a salaried household. Go to nine or twelve months if you are self-employed or the only earner. Keep one to two months in the bank and the rest in a liquid or overnight fund.

Work out your number

What an emergency fund is for

A job loss, a medical bill that insurance does not fully cover, an urgent trip home, a major repair. It is not for holidays, gadgets or a market dip you would like to buy. Its job is to stop a bad month from becoming a loan, or from forcing you to sell long-term investments at the wrong time.

What to count

Essential expenses: rent, groceries, utilities, school fees, domestic help, transport, parents' support.
Every EMI. Lenders do not wait.
Insurance premiums, spread monthly. Letting a health or term policy lapse during a crisis is the worst outcome.

Leave out discretionary spending. In a real emergency, it stops.

How many months

Your situation	Months
Two stable salaries, no dependants	3–4
Salaried, with dependants or an EMI	6
Single earner, or a volatile industry	9
Self-employed or business owner	12

Where to keep it

Rank your options by safety and access first, return last.

One to two months in a savings account or sweep-in FD — available at 2 am on a Sunday.
The rest in a liquid or overnight mutual fund — typically credited within one working day, with returns close to short-term deposit rates.

Avoid equity funds, long-duration debt funds, locked-in deposits and anything with an exit penalty. An emergency and a market fall often arrive together.

How to build it without stalling everything else

Treat it like a bill. Set up a monthly transfer on salary day and build the fund over 6 to 18 months. If you are paying off high-interest debt such as credit cards, build a one-month buffer first, clear the debt, then complete the fund. Health insurance and term insurance sit alongside it — the three together are the foundation everything else stands on.

FAQ

Should my emergency fund be in a joint account?

Your spouse or a trusted family member should be able to access it if you cannot. A joint account, or a fund folio held jointly with 'either or survivor' operation, solves this.

Do I need an emergency fund if I have a credit card with a high limit?

Yes. A card covers a few days, at interest rates of 36–42% a year if you cannot clear it. A fund covers months, at no cost.

I used part of my emergency fund. What now?

That is what it is for. Pause new long-term investments if needed and rebuild it over the next few months.

Education only. This article does not recommend any specific fund or product.

Abhishek Sambangi

Co-founder, Investments & Research · About