Like the name suggests, an 'emergency fund' is money that you can use in an emergency. There are two critical features of an emergency fund:
1. It must be in liquid form, meaning it should be accessible to you quickly when you need it
2. It should be completely secure and have limited (if not zero) risk
A small percentage of the emergency fund can be kept in cash and the rest can be in a savings account.
We should avoid investing this money in options such as PPFs or FDs as withdrawal before the due date for these can result in loss of interest.
We should also be very careful and avoid investing this money in high-risk options because losing it can be very dangerous for our overall financial security.