Read the following posts before proceeding further -
Factors Determining The Size Of Emergency Funds
When Should You Not Use Your Emergency Funds
When you set aside your liquid fund, the following two criteria must be taken care of -
Safety of the investment - It must be held in safest instrument possible.
Liquidity of the investment - It must be highly liquid. Accessing the money should not take more than a day.
What are the safest instruments?
Savings Account / Checking Account with any bank of good standing.
Fixed Deposits With Banks - You must make sure that the deposits do not have any kind of lock-in.
Liquid Funds - Invest in liquid mutual funds. While you invest in any mutual fund, do ensure that the investments are in the safest instruments possible. Take for example, PPFAS Liquid Fund, most of their investments are held in sovereign instruments. (This is not an investment advice)
Stash It Under Your Bed - Not literally. All I mean is to have some part of it at home. You cannot always run to the bank to access your money. Let’s do a thumb rule. Always have at-least 1 month of expenses as cash at home.
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