It is important for individuals to focus on building a Protection Fund as a first important step in financial planning. 

Everyone has to keep in mind that your parents are not your Protection fund because your parents might be considering you as their retire fund, think !

1. What is a Protection Fund?

A Protection Fund is money saved for emergencies, like medical bills, sudden job loss, or urgent repairs at home. T

The idea is to have money ready when unexpected situations happen, so you don’t need to borrow or use your long-term investments.

2. How Much Should You Save?

• 6 Months of Expenses: It’s a good idea to save enough to cover 6 months of your living expenses considering it as family. This amount can change depending on your situation, but this buffer will help you feel secure and protect you from irrational financial decisions.

• Single-income Families: If you’re the only person earning money in your family, it’s better to save for 6 months of expenses.

• Dual-income Families: If both partners are working, saving for 3 months of expenses may be enough. However, this depends on how stable your jobs are.

• For business or professional : Sticking to 6 months expense.

3. Where Should You Keep the Protection Fund?

The Protection Fund should be easy to access, so I recommend:

• Savings Accounts: While they don’t earn a lot of interest, they give you easy access to your money. You can consider upgrading your savings account to flexi FD account. 

• Liquid Funds: These are mutual funds that can be quickly turned into cash. They offer a bit more return than a savings account but still keep your money safe.

• Fixed Deposits (FDs): These are another safe option, but you may have to pay a penalty if you withdraw the money early.

• Equity Arbitrage funds: Equity arbitrage funds also a good choice with Tax prospective after change in taxation and exit load aspects. 

4. How to Build It ?

Don’t stress about saving a big amount all at once. Start small and add to the fund regularly. Saving a little bit each month will help you build your Protection Fund without making a huge impact on your budget.

5. When to Use the Protection Fund?

Only use the Protection Fund for real emergencies, like:

• Medical emergencies

• Losing your job or income suddenly

• Urgent home or car repairs

• Unexpected family events (like a wedding or funeral)

Keep in mind unplanned vacations or buying a new gadget or Car is not at emergency.

6. Don’t Let It Sit Idle

While you need the Protection Fund to be easy to access, it’s also important that it earns some interest. Keep it in a place that gives you a little growth, like a liquid fund, equity arbitrage fund or a savings account with a better interest rate.

7. Review and Refill Regularly

• If you use the Protection Fund, make sure to refill it as soon as you can.

• Regularly check if the amount is still enough. You may need to increase it if your lifestyle or expenses change.

8. Don’t Over-invest It

Even though you might be tempted to invest your Protection Fund in something that offers higher returns, remember the goal is safety and quick access. Keep your Protection Fund in safe, liquid options, and avoid putting too much of it in risky investments like stocks.

A Protection Fund is important because it helps you handle unexpected situations without stress. It keeps you from using credit cards, loans, or selling investments when things go wrong. Building and maintaining this fund should be a top priority in your financial plan.