India’s leading IT company Tata Consultancy Services (TCS) has recently announced plans to reduce its workforce by 2%. This figure indicates the loss of more than 12,000 jobs. The IT bellwether’s move has created a wave of concern not only in the Indian IT sector but in the corporate world as a whole.
The company has made it clear that these layoffs are not due to the impact of AI disruption but due to skill mismatch and a change in business priorities. However, it is also clear that now there is no guarantee of stability of jobs in any sector. In such a situation, the need and relevance of emergency fund has increased more than ever.
What is an emergency fund and why is it necessary?
An emergency fund is a financial cushion that helps you in times of uncertainty and emergency like a job loss, medical emergency or family crisis. It helps you and your family meet monthly needs without resorting to borrowing.
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Our house view is that you should have an amount equivalent to at least 12 months of essential monthly expenses as an emergency fund. These essential expenses are those that cannot be avoided under any circumstances – such as house rent or home loan EMI, cost of ration and medicines, utility bills like electricity, water and internet, children’s school fees or tuition fees and premium of insurance policies taken for you and family. This amount not only maintains your mental peace, but also helps you get through difficult times without debt.
Where should you keep this fund?
The most important aspect of an emergency fund is that it should be absolutely safe, and immediately available, i.e., you should be able to access that amount whenever you want, without any hassle or loss.
Therefore, it should be kept in investment options that offer high liquidity and have zero to very low capital risk. The best option is a savings bank account or short-term redeemable fixed deposit with a bank like State Bank of India. Remember, we are aiming for extreme safety here.
You can also keep some money in liquid mutual funds.
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