Debt funds commonly encounter interest rate risk, wherein the value of the funds may decrease in a scenario of rising interest rates and increase in a falling rate environment. This mirrors a similar risk faced by fixed deposits with extended lock-in periods, albeit with a distinction in terms of opportunity cost. While fixed deposits might also face the impact of changing interest rates, the notable difference lies in the absence of actual loss of value when the deposit is held until maturity. The comparison underscores the importance of understanding the nuances of interest rate dynamics and their implications on different financial instruments.

Financial experts commonly advise having an emergency fund covering 6 to 8 months of living expenses. To determine this, calculate essential costs like housing, food, healthcare, utilities, transportation, personal expenses, and debt servicing. Exclude non-essential expenses such as entertainment and vacations. Consider saving more if circumstances demand, providing an added layer of financial security for unexpected situations.

Having a more substantial savings cushion proves advantageous in various scenarios, especially during a recession characterized by elevated unemployment rates and prolonged joblessness. This holds particularly true for individuals in high-risk industries prone to frequent layoffs. A practical approach involves gradually building up your savings by consistently setting aside smaller amounts at regular intervals, such as weekly or with every paycheck. This proactive strategy ensures financial resilience during uncertain times and mitigates the impact of economic downturns or industry-specific challenges.