Definition
Emergency Fund
An emergency fund is a readily accessible reserve of cash set aside to cover several months of essential expenses, protecting against income loss or unexpected costs.
An emergency fund is a buffer — commonly a few months' worth of essential living expenses — kept in highly liquid, low-risk forms like a savings account, sweep-in FD or liquid fund, so it can be accessed quickly without penalty or market risk.
It cushions shocks such as job loss, medical emergencies or urgent repairs, preventing you from selling investments at a bad time or resorting to high-cost debt like credit-card revolving balances.
Building the fund before chasing higher-return investments is a foundational personal-finance step. The right size depends on job stability, dependants and fixed obligations.
Related terms
- Credit ScoreA credit score is a three-digit number summarising your creditworthiness based on your borrowing and repayment history, used by lenders to decide on loans and interest rates.
- SIP (Systematic Investment Plan)A Systematic Investment Plan is a method of investing a fixed amount in a mutual fund at regular intervals, averaging the purchase cost and instilling investing discipline.
- Sweep-in Fixed DepositA sweep-in FD links a savings account to a fixed deposit so surplus funds auto-move to earn FD interest, and reverse-sweep back when the account needs money.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.