An emergency fund covers 3–6 months of expenses in a liquid, safe instrument — so a job loss, medical bill or major repair never forces you to sell your investments at the wrong time.
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Keep 1–2 months in a savings account for instant access. Park the rest in a liquid mutual fund or a short-term FD — accessible within 1 business day with slightly better returns. Avoid equities for this money.
Freelancers and those with variable income should aim for 9–12 months of coverage. See our full disclaimer.