Add up everything you pay only once or twice a year, divide by 12, and move that amount into a separate account every month. That is a sinking fund. For ₹2,00,000 of yearly irregular costs, the number is about ₹16,700 a month, and it stops these bills from landing on your credit card or breaking your SIP.
Most budgets cover rent, groceries, EMIs and the SIP. The trouble comes from the bills that skip months. They are predictable; you just don't feel them until the due date. When one arrives, there are three bad options: pause the SIP, swipe the card, or dip into the emergency fund.
A sinking fund fixes the timing. You pay yourself in small, steady amounts so the big bill is already covered.
Look back through the last 12 months of bank and card statements. A typical list looks like this:
| Expense | Yearly cost (₹) |
|---|---|
| Insurance premiums (health, term, motor) | 40,000 |
| Festivals, gifts and weddings | 30,000 |
| Vehicle service, tax and tyres | 20,000 |
| Annual trip | 50,000 |
| School or course fees | 40,000 |
| Appliance and gadget repairs | 20,000 |
| Total | 2,00,000 |
Divide by 12 and you get roughly ₹16,700 a month. Round it up to a clean figure so small surprises are covered too.
The money must be easy to reach and hard to spend casually.
The sinking fund covers short-term, known costs. Long-term goals such as retirement, a child's education or a home need their own SIP. Planning tools that give each goal a separate SIP, like the 6-step goal plan in the Plan Our Future app, work best when the yearly bills are already handled and nobody has to stop an SIP to pay a premium.
Q. How is a sinking fund different from an emergency fund?
A. An emergency fund covers unexpected events such as job loss or a medical crisis. A sinking fund covers expenses you know are coming, only at irregular intervals.
Q. Should I invest my sinking fund in mutual funds?
A. For bills due within about a year, capital stability matters more than returns, so equity is a poor fit. Low-risk options suit better. Returns are never guaranteed.
Q. What if I do not have a separate account?
A. Opening one is usually free and takes minutes. Without a separate account the money tends to get spent, so it is worth the effort.
Q. What if my yearly costs change?
A. Recalculate once a year, or after a big change like a new policy, a child starting school or a new vehicle, and adjust the monthly amount.
Plan Our Future · AMFI-registered Mutual Fund Distributor (ARN-360754). Mutual Fund investments are subject to market risks, read all scheme related documents carefully.