New Delhi, Oct. 22 -- An emergency fund of Rs.10 lakh can provide financial support during a job loss, medical emergency or an unexpected household expense. However, keeping the entire amount in a savings account may mean earning relatively low interest, while locking it all into fixed deposits or mutual funds could make accessing the money less convenient when it is urgently needed.

The challenge is to balance three priorities: liquidity, capital safety and returns. Financial experts say an emergency fund should be divided according to how quickly the money might be required, rather than invested entirely in the instrument offering the highest returns.

For someone with a Rs.10 lakh emergency fund, one possible allocation is Rs.2 lakh i...