Financial planners advocate keeping aside an emergency fund- large enough to take care of minimum six months of expenses. Also known as contingency fund, this corpus should take care of your payments due such as loan EMI and insurance premium. This money should be easily accessible and used only in case of loss of income or such other emergency.

Emergency fund should be kept in liquid avenues such as fixed deposits, liquid funds and overnight funds. While fixed deposits can be accessed in hours, some liquid funds offer instant credit of redemptions subject to conditions. Avoid investing your emergency fund in stocks or equity funds. Choose liquidity over returns.