An emergency fund is 3–6 months of essential expenses — not income — kept in an easily accessible instrument like a savings account or liquid fund, meant purely to cover job loss, medical emergencies, or urgent repairs.
It should sit separately from your investments, since the whole point is that it’s available instantly without having to sell equity or mutual fund holdings at a bad time.
Build it before committing to aggressive investing — without this buffer, an unexpected expense often forces you to break a long-term investment early, undoing years of compounding.
Example.If essential monthly expenses are ₹40,000, a reasonable emergency fund would be ₹1.2–2.4 lakh, kept in a savings account or liquid mutual fund rather than locked in a fixed deposit with a penalty for early withdrawal.