Man with ₹12 lakh in investments struggles to pay ₹1.5 lakh hospital deposit: How you can avoid this

A man shared a Reddit post detailing how despite being “rich on paper,” a middle-of-the-night medical emergency exposed a major gap in his financial planning. He claimed that while he had around ₹12 lakh invested in stocks and other funds, along with ₹10 lakh in corporate health insurance, he struggled to arrange a ₹1.5 lakh hospital deposit when his mother needed emergency care.

With only ₹18,000 in his bank account and the third-party administrator (TPA) office unavailable until morning, the social media user had no choice but to seek help from a friend at midnight and max out his credit cards to arrange the money needed to get his mother admitted.

Talking about the insurance process, he stated, “On top of that corporate insurance often gets stuck in paperwork delays or leaves you paying out of pocket for charges. It made me realize that being wealthy, on paper means nothing if you cannot access money in an instant.”

His ordeal highlighted the importance of having liquid cash for medical and other such emergencies, instead of solely chasing high returns in “stocks and long-term funds” which cannot be accessed immediately.

How much medical emergency fund do you need?

While the immediate responses from other Reddit users to the post were to prioritise building an emergency fund, individuals are advised to maintain separate emergency and medical contingency funds, as they serve different purposes, according to Harendra Zatakia, a Sebi-registered investment advisor and the founder of Wealth Aligned Financial Advisory.

While an emergency fund can be used to meet unexpected expenses or manage a loss of income, a medical contingency fund is specifically set aside to cover hospital admission deposits, diagnostic expenses, co-payments, non-covered medical expenses and claim shortfalls or delays, he added.

“There is no universal number, but for many families I would consider around ₹10 lakh as a useful starting point, and then adjust it for age, family size, city, preferred hospital and existing medical conditions,” the expert advised.

Where should you park your emergency money?

Individuals can follow a layered approach for parking their emergency funds rather than keeping the entire corpus in one place. Zatakia suggests dividing the fund based on how quickly the money may be needed:

• Around 10% of the corpus can be maintained in a savings account or sweep-in FD for immediate access.
• Around 50% of the corpus can be kept in liquid mutual funds, preferably diversified across two funds.
• The remaining amount can be kept in multiple smaller, staggered FDs.

“The idea is to match the investment structure with the liquidity requirement. Smaller FDs mean you need not break a large deposit for a relatively small requirement, while liquid funds allow partial redemption,” he said.

Liquid funds offer an instant redemption facility (except Saturday and Sunday), subject to the scheme’s terms and applicable limits. The Securities and Exchange Board of India (Sebi) currently permits instant access of up to ₹50,000 or 90% of the folio value, whichever is lower, per day per scheme per investor. The balance can be redeemed the next day or later through the normal process.

“For a medical contingency fund, I would use a similar structure. If a family member is undergoing prolonged treatment, a sweep-in FD with debit card and online transfer facilities can provide an additional layer of operational liquidity. The important point is that an emergency fund should optimise for capital safety and accessibility, not returns. It is not an investment portfolio,” he added.