An emergency fund is the essential corpus of money that you should keep aside to tackle the unexpected financial curve balls that life throws at you. It works as a safety net, protecting you in case of an unplanned, uncalled for situation.Emergency funds create a financial buffer that can keep you afloat in a time of need without having to rely on credit cards or high-interest loans. A liquid fund acts as an emergency fund as it is a class of debt funds that invests in debt instruments of less than 91 days maturity. These debt instruments are high-rated papers and are not affected by interest rates. Hence, they earn decent returns without being volatile.