I want to know what options I have for my emergency fund specific to India.
The answers are pretty much the same;
- Savings Account with any leading bank. One can access cash via ATM or Debit Cards immediately.
- Fixed Deposits. It would take some time to liquidate them. Typically a visit to Bank is required. Some Banks allow them to be liquidate via Online. There is also Over draft against FD's that can be set-up
- Debt Mutual Funds
I believe that @Dheer has the right answer. I think that with a savings bank account, you ought to start a flexi-deposit/sweep account. If you for example have more than x currency in your account, that money would be treated as a fixed deposit and earn you a slightly higher rate of interest. Typically interest is calculated on a daily basis on sweep accounts.
The idea of a rainy day fund is like that of an insurance, you should never require it.
With observations from above, bank account is fine is you need to 'access' the money is very very short notice, like tomorrow morning, which is rarely the case and if you have credit card and it is usable in the situation, then, immediacy need of physical money decreases further. You also get lower interest rates while the money is waiting in the account and you pay tax at the end of the year.
As for fixed deposits, it is less liquid as observed and again, the tax become payable on maturity.
Best bet are not debt funds in general but very short term debt funds or liquid funds. They usually give few basic points higher interest than bank fixed deposits and best of all they do not have any maturity and are open ended. You usually get the money within 4 days and if you do not take the money out, no tax is payable, the money can compound at the interest rate for as long as you do not require it and you can withdraw the amount you require in case of need (unlike FDs, the entire FD usually needs to be broken). In addition, if you have online DMAT account, you can liquidate the same yourself