Skip to content

NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Introduction to Personal Financial Planning

Rohit Mehra, 30, a Pune software engineer, has monthly expenses of Rs 40,000 and no dependants. His employer provides job security and a stable salary, and he has a family home. Which emergency fund target is most consistent with the common rule of thumb for such a stable profile?

An emergency fund of about 6 to 12 months of expenses suits Rohit, so Rs 2.4 lakh to Rs 4.8 lakh at Rs 40,000 a month. One or two months is too small to cover a job loss, and 50 months is excessive idle liquidity.

  1. ARs 2.4 lakh to Rs 4.8 lakh (6 to 12 months of expenses)Correct
  2. BRs 40,000 (1 month of expenses)
  3. CRs 20 lakh (50 months of expenses)
  4. DRs 80,000 (2 months of expenses)

Explanation

The common rule of thumb is an emergency fund of about 6 months of expenses, rising towards 12 for riskier incomes. 6 x 40,000 = Rs 2.4 lakh and 12 x 40,000 = Rs 4.8 lakh. One or two months is too thin, while Rs 20 lakh would be excessive idle money.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Personal Financial Planning shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Personal Financial PlanningFree diagnostic mock

More Introduction to Personal Financial Planning questions