How to set up an emergency fund?

My current salary in hand is ₹65,000 per month and I can conservatively assume an increment of 8 per cent per annum. My expense per month is around ₹30,000. I am staying in a rental accommodation with my family and pay a monthly rent of ₹18,000. I also have a term insurance cover of ₹40,000 and pay an annual premium of ₹14,000.I have a health insurance cover of ₹5 lakh (₹3 lakh base cover plus ₹2 lakh top-up) through my company which covers my family, including my father and mother. For the top-up cover, I pay an annual premium of ₹5,000 per annum. How should I go about setting up an emergency fund? Liquidity and safety of principal amount will be of uttermost importance. Apart from setting up a recurring deposit, what other options can I explore?
Please also recommend ELSS schemes in which I can invest in monthly SIPs to utilize the tax benefit of ₹1.5 lakh per annum.
- Darshan Pillai

It seems, you have mentioned the quantum of term insurance cover wrongly in your mail.

As for setting up a contingency fund, the general rule is to build a corpus that would cover your monthly expenses of three to six months. Since you have old parents, you should aim for six months' expense. You can start a recurring deposit to build the corpus. Once you have accumulated the money, you can keep it in a bank fixed deposit that can be liquidated easily. Some people also keep half the money in a bank deposit and the other half in a liquid scheme to earn better return on the idle cash.

Here is a list of our best Equity Linked Savings Schemes (ELSSs): Click Here

This article was originally published on October 12, 2015.