Emergency Funds - Where to Invest & Why to have

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Importance of Emergency Funds

Life can be full of uncertainties. One minute you have a steady job and income, and the next you could be fighting to make ends meet. This is why it is critical to have a safety pool of funds that can be used when an emergency strikes. Emergency funds provide you with this security in times of unexpected circumstances. The importance of an emergency fund cannot be stated enough.

Here are a few things to know in this regard.

Why should you have an emergency fund?

An emergency fund is a vital component of your financial plan. Storing some money specifically for a contingency can ensure that you do not spend your long term savings or end up in debt over short term expenses. Losing a job or coming face to face with a medical emergency can force you to dig into your savings pool. You may even be compelled to take on a loan or rely on your credit card. All of this can be avoided with an emergency fund in place. Having an emergency fund offers you with increased liquidity and acts as a cushion to fall back on.

How to build an emergency fund?

There are various ways to build an emergency fund. You can follow the steps given below to craft a foolproof emergency fund:

Set an ideal amount: It is essential to know how much money you need to ward off an emergency. This can be done with efficient financial planning. Keep in mind your gross income, monthly expenses including essentials and loan repayments, and the number of dependent family members to arrive at an amount that can be sufficient for your individual situation. At an average, a sum of six to eight months of your salary can be an adequate sum for an emergency fund.

Get insurance cover: Getting an insurance cover as an emergency fund will ensure that you and your loved ones are covered against all odds. The life cover can be of use in your absence and help your family to carry on with their lives. The critical illness or disability benefit can provide you with the necessary protection in case of an illness or medical emergency.

Invest in the right investments: While you save for a contingency, it is also important for that money to keep growing rather than lie idle. This can be done with mindful investments. Investments in instruments that offer high returns will guarantee that your emergency fund retains its worth and is able to counter the growing inflation. However, it is crucial for you to invest in products that can be easily accessed in times of an urgent need. Investments that come with high penalties on early withdrawals can be detrimental in the long run.

Wealth creation plans by ICICI Prudential Life

ICICI Prudential Life offers many plans that have the potential to maximise your investments along with providing you with the safety of a life cover that can protect your family in the case of an emergency. The ICICI Pru Lifetime Classic Plan¹ is a Unit Linked Life Individual Product that gives the dual benefit of investment and financial protection through a life cover. It allows you to invest your money in a combination of debt, equity, and balanced funds. You can choose between four portfolio strategies⁶ as per your preference and make four fund switches in a year for free. In addition to this, loyalty additions³ and wealth boosters⁴ get added to your investment, thereby increasing your overall returns. The plan allows you to choose flexible premium payment modes among single pay, monthly, semi-annually, and annually. The plan also offers tax⁵ benefits under Section 80C⁵ of Income Tax Act, 1961.

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Disclaimer

¹ This is not a product brochure. For more details on the risk factors, terms and conditions, and the charges and benefits related to Surrender, Premium Discontinuance, Revival etc., please read the sales brochure carefully before concluding the sale. Past performance is not indicative of future performance.

Unlike traditional products, unit linked insurance products are subject to market risk, which affect the Net Asset Values and the customer shall be responsible for his/her decision. The names of the Company, product names or fund options do not indicate their quality or future guidance on returns. Funds do not offer guaranteed or assured returns. This is a unit linked insurance plan. In this policy, the investment risk in investment portfolio is borne by the Policyholder. Unit linked Insurance products do not offer any liquidity during the first five years of the contract. The Policyholder will not be able to surrender/withdraw the monies invested in unit linked insurance products completely or partially till the end of the fifth year. On surrender after completion of five years the surrender value will be the Fund Value including Top Up Fund Value, if any.

³ Loyalty Additions : Each Loyalty Addition will be a percentage of the average of daily Fund Values including Top-up Fund Value, if any, in that same policy year. Loyalty Additions will be allocated among the funds in the same proportion as the value of total units held in each fund at the time of allocation. The allocation of Loyalty Additions is guaranteed and shall not be revoked by the Company under any circumstances. If the premium payment is discontinued any time after 5 years, the number of years for which premiums have been paid will be considered as the premium paying term for the purpose of deciding the Loyalty Additions to be paid for the rest of the policy term.

⁴ Wealth Booster : Each Wealth Booster will be equal to a percentage of the average of the Fund Values including Top-up Fund Value, if any, on the last business day of the last eight policy quarters.

Wealth Booster will be allocated between the funds in the same proportion as the value of total units held in each fund at the time of allocation. The allocation of Wealth Booster units is guaranteed and shall not be revoked by the Company under any circumstances. If the premium payment is discontinued any time after 5 years, the number of years for which premiums have been paid will be considered as the premium paying term for the purpose of deciding the Wealth Boosters to be paid for the rest of the policy term.

⁵ Tax benefits are subject to conditions under Section 80C,10(10D), 115BAC and other provisions of the Income Tax Act,1961. Good and Service tax and Cesses, if any will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for more details.

⁶ The Policyholder can only have his funds in one of the Portfolio Strategies. The four portfolio strategies are - Target Asset Allocation Strategy, Trigger Portfolio Strategy 2, LifeCycle based Portfolio Strategy 2, Fixed Portfolio Strategy.

Product UIN: 105L155V06

E/II/4995/2021-22

Importance of Emergency Funds