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Part - II

Income Reduction Risks

• If Job security is not a characteristic of your profession, your Income will definitely much a shaky, then your emergency funds should be large enough to cover all expenses (Living expenses, Insurance premium payments, loan repayments, school & college fees) till such time as your income stabilizes.

• Example: Arun Mukherjee, 58, a kolkata - based folk theatre artist, is familiar with the risk of erratic income. Mukherjee tours different areas of west Bengal with drama troupes & gets paid for each show. This means some 120 substantial but irregular payments in a year. To insulate his family from the vagaries of his income stream, Mukherjee maintains a separate savings account in which he parks enough money to run his household even when he does not make money.

• If u are setting up an EF to take care of income reduction risk, you don't need a very high level of liquidity. As Sridhar K, VP & Country head distribution, Karvy Securities, says: "You wouldn't need six months expenses at once, if u were to lose your job today". So you ca spread the emergency fund money in absolutely liquid options like Bank Savings Accounts, & those with lesser liquidity like liquid funds that can be liquidated in 24-48 hrs.

Expense Bloatong Risks

• A Medical emergency, an accident that involves repairs to your vehicle or house... Insurance doesn't cover everything.

• Most Financial Planners recommend that retired people maintain larger emergency funds than younger people.

• Example: S. K. Malik, 60, a retired IOC employee, has taken care & kept Rs 1 lakh in a bank FD-cum-savings Account. Although IOC takes medical care of its retired employees, Malik has taken care to ear mark Rs 25,000-30,000 for medical expenses that may not be covered, Another Rs 30,000 for emergency travel & the rest for assisting family members.

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* Contributed by -
Prashant Jadhav,
2nd Year PGeMBA (Finance),
Mumbai Educational Trust (MET) Schools of Management, Mumbai.