Have Rs 5,000? Here's why an emergency fund should come before your SIP

You've heard the advice, i.e., "Start a SIP immediately." But is that the smartest first move with Rs 5,000? The choice might surprise you.

Imagine this: You just received your first salary and feel on top of the world. Everyone around you is talking about mutual funds and wealth creation, so you decide to start a Rs 5,000 SIP (Systematic Investment Plan) immediately. The excitement is real, you check your portfolio daily, imagining the wealth you would accumulate over the years.

But life, as it often does, had other plans. A sudden accident, a medical emergency, or an urgent expense hits. With no emergency fund to rely on, that SIP you were so proud of has to be broken at a loss. The joy of investing evaporates, replaced by frustration, and a shaken confidence in the very idea of growing your wealth.

IndiaToday.in spoke to Ritesh Sabharwal, certified financial planner and personal finance expert; Gaurav Makhijani, Tax Head at Makhijani Gera and Associates; and Mayank Bhatnagar, Co-founder and COO of FinEdge, to understand: if you have Rs 5,000 to spare, what should come first—SIP or emergency fund?

Ritesh Sabharwal explains the key issue, “FOMO-driven investing without a safety net is a common trap. Beginners see friends making money in mutual funds, feel they're ‘missing out,’ and immediately start SIPs, only to break them at a loss when an emergency hits six months later. The investment isn’t the problem—the sequence is.”

The numbers back it up. “70% of people who start SIP without an emergency fund break it within 2 years. Those who prioritise a safety net first—85% stay invested for over five years,” Sabharwal adds.

So how should a first-time investor with only Rs 5,000 spare approach this? Mayank Bhatnagar explains, “An emergency fund is a goal in itself, and a SIP can be one of many tools to achieve it. For individuals with irregular income, dependents, or limited job security, building a basic emergency buffer may take precedence to avoid dipping into investments during unforeseen events.”