A sinking fund is money you set aside a little every month for an expense you know is coming: Diwali shopping, an annual insurance premium, school term fees, a holiday or a new phone. The formula is simple: monthly amount = (target − already saved) ÷ months left. A ₹30,000 Diwali budget twelve months away needs ₹2,500 a month.
Sinking fund vs emergency fund
| Sinking fund | Emergency fund | |
|---|---|---|
| For | Expenses you know are coming | Expenses you can't predict: job loss, a medical emergency |
| Timing | A known date | Any time |
| Size | Each fund's target | Usually 3–6 months of essential expenses |
| Spending it | Planned, and that's the point | Only in a real emergency |
Without sinking funds, predictable costs get paid from the emergency fund or a credit card, and the budget "breaks" every October and every April.
How to calculate a sinking fund
- List the expense and the target amount, for example a health insurance premium of ₹24,000.
- Note when it's due, say in 8 months.
- Subtract what you've already saved, say ₹4,000, leaving ₹20,000.
- Divide by the months left: ₹20,000 ÷ 8 = ₹2,500 a month.
- Automate it: set a monthly transfer on salary day, then tick it off.
12 sinking funds for Indian households
| Fund | Example target | Due in | Per month |
|---|---|---|---|
| Diwali & festivals | ₹30,000 | 12 months | ₹2,500 |
| Health insurance premium | ₹24,000 | 12 months | ₹2,000 |
| Car / bike insurance & service | ₹18,000 | 12 months | ₹1,500 |
| School / tuition term fees | ₹45,000 | 6 months | ₹7,500 |
| Annual holiday | ₹60,000 | 10 months | ₹6,000 |
| Wedding-season gifts & shagun | ₹15,000 | 6 months | ₹2,500 |
| Birthdays & anniversaries | ₹12,000 | 12 months | ₹1,000 |
| New phone / laptop | ₹36,000 | 18 months | ₹2,000 |
| Home repairs & appliances | ₹24,000 | 12 months | ₹2,000 |
| Medical & dental (not covered) | ₹12,000 | 12 months | ₹1,000 |
| Society maintenance / property tax | ₹18,000 | 12 months | ₹1,500 |
| Annual subscriptions & renewals | ₹6,000 | 12 months | ₹500 |
Targets are examples to show the method. Use your own bills from last year as the starting point.
Tips
- Start with three. Pick the three expenses that hurt most last year. Add more once those are on autopilot.
- One account, many funds. You don't need twelve bank accounts. Keep one separate savings account and track each fund's balance on paper.
- Check in monthly. If one fund is ahead and another behind, move money between them rather than dipping into the emergency fund.
- Put the monthly total in your budget. Sinking-fund contributions belong in the savings share of your monthly budget.
Printable tracker
The Sinking Funds Tracker (₹) has an overview page pre-filled with ten common Indian funds (festivals, vacation, insurance premiums, vehicle service, gifts, gadgets, home repairs, medical, school fees and wedding season) plus blank rows, six individual fund trackers with deposit and withdrawal logs and a 20-box progress bar, and a monthly check-in. A4, ₹199. Planning Diwali spending? See our Diwali 2026 guide.
Frequently asked questions
What is a sinking fund in simple words?
Money you save a little at a time, every month, for a specific expense you know is coming, such as Diwali, an insurance premium or school fees.
How do I calculate how much to put in a sinking fund?
Subtract what you have already saved from the target, then divide by the number of months left. For example, ₹20,000 still needed in 8 months is ₹2,500 a month.
What is the difference between a sinking fund and an emergency fund?
A sinking fund is for expenses you know are coming and plan to spend. An emergency fund is for unexpected events like a job loss or medical emergency and is only used then.
Do I need a separate bank account for each sinking fund?
No. Most people keep one separate savings account for all sinking funds and track each fund's balance on paper or in a spreadsheet.
Which sinking funds should I start with?
Start with the three predictable expenses that strained your budget most last year, commonly festivals, insurance premiums and school fees.
This article is general information, not financial advice.