Emergency fund, Insurance, SIP form the trinity in personal finance: MIRA Money

Kolkata: Being financially secure is not about investing only. Even if you are making sound investments, you can be at risk from unforeseen situations which are increasingly becoming common in the modern world. A sudden job loss for reasons completely beyond your control are getting more frequent as risks are rising for different sectors of the industry in an interconnected world. With healthcare costs rising, unanticipated health emergencies too can upset your financial apple cart.

Mohit Bagdi, who heads investment research in MIRA Money tells TV9 when building wealth, most individuals focus extensively on investments-particularly SIPs in mutual funds or stocks-while ignoring the crucial pillars that provide resilience and sustainability to this journey: Insurance and Liquidity. "Emergency Fund, Insurance and Systematic Investment Plans (SIPs) are the three legs that make up a strong wealth base," he says. Let's have a closer look.

If we look around, we can see insurance is the most neglected of all financial tools. This is not only corroborated by episodic sample but also by macro data. India's health insurance penetration stood at a mere 3.7% at the end of FY24. It is very low by global standards. "I strongly believe that in today's world, one should buy health insurance even before initiating their first SIP. Why? Because one unexpected hospitalisation, without adequate insurance, can undo years of disciplined investing," says Bagdi. "Many working professionals rely solely on corporate health policies, failing to account for risks during job changes, layoffs, or policy limitations. I urge all individuals to consult with insurance advisors and secure individual health and term insurance covers they are non-negotiable financial safety nets," he added.

As the nomenclature implies, an emergency fund is a pool of money which one dips into during an emergency like a sudden job loss. All personal finance advisors strongly recommend the primacy of emergency fund but very few actually do it, probably laboring under the impression that emergencies won't befall him/her. Even if a few actually create an emergency fund, most put inadequate amounts in it.

"You should keep 3 to 6 months' worth of regular spending in a low-risk, highly liquid investment, not in stocks. This keeps long-term equities investments safe during crises, so they can keep growing without any problems," said Bagdi, adding "An emergency fund is not a replacement for SIPs; it is an extra safety net that helps keep wealth building on track".

The mutual fund industry has been on an upswing over the past few years. The graph of inflow via SIPs in the mutual fund industry has been rising almost constantly for a few years and AMFI figures put the SIP inflow in June to Rs 27,269 crore. Considering there were 21 trading days in June, it worked out to nearly Rs 1,300 crore on average every day of trading.

However, Bagdi has pointed out a couple of unwise trends. According to the MIRA Money expert, two disturbing tendencies have shown up recently. One, many are discontinuing SIPs during market corrections. "The SIP halt rate on direct platforms reached its highest point in 2025 at 102%. In 2023 it was 68% and in 2024 it was 63%. This suggests panic or short-term thinking taking precedence over discipline," he remarked.

Two, many investors are chasing returns in risky categories. "The number of folios in thematic funds and small/midcaps grew by 50% and 45%, respectively, between May 2024 and May 2025. In large caps however it only grew by 15%. This shows that investors are becoming more biased toward parts of the market that are likely to be volatile because they want to make money. Such trends can destabilize the psychological discipline required in wealth creation and may lead to investors shifting prematurely to debt or exiting investments altogether," Bagdi warned.

SIPs should be simple, consistent, and strategically diversified across market caps and fund categories. But nothing works in isolation. "An investor's journey is most secure when backed by proper insurance and liquidity planning. These three pillars work together to create not only wealth but also financial resilience, which is the ability to stay invested and on track through any market cycle or life event," Bagdi signs off. Every stool needs at least three legs to remain stable.