HIGHLIGHTS

• Assess whether your cash flow shortage is temporary or long term

• As an employee (without loss of employment) you can obtain 75% of the EPF balance as an advance

• In the event of job loss, you can benefit from 100% of the EPF balance after two months of unemployment

• You can take out a loan against FD or PPF which can be as cheap as 1%

• Make a partial withdrawal from the NPS to cover medical costs

• Gold loan can be used with flexible repayment options and lower interest rate

• Take a loan against equity investments

• Opt for a personal loan only if you have a temporary problem

The coronavirus lockdown is likely to have far-reaching economic consequences. Very few companies with generous pockets will be able to survive this trial period without downsizing or cutting wages.

Whether an employee or freelance or professional or businessman, most are likely to face minor or major income disruption. If you are trapped in such a situation, your first priority should be to get back to pre-crisis income levels as quickly as possible.

But it can take a few months to a year during which you will have to manage your expenses. It could mean tapping into your savings, emergency fund, and short-term investments. If that is not enough, you will have to look for other sources. There are other sources that you can tap into to meet fund requirements.

Decide between liquidation and loan

When looking for other sources, the first thing you need to do is assess your financial situation. If you are facing a partial loss of income or a temporary disruption in your income, you may want to consider taking out a loan to overcome the crisis.

However, if you are facing an issue like job loss or a larger business disruption and you don’t know when things will get back to normal, it would be best if you didn’t add a liability. extra in terms of EMI. A more appropriate option would be to liquidate certain investments.

“Investors can buy back their existing investments to deal with financial emergencies if not specifically tied to critical financial goals, and buying them back does not result in heavy losses under current market conditions,” Naveen said. Kukreja – CEO and Co-Founder, Paisabazaar .com.

Here are some of the options you can explore while getting your personal finances in order.

Advance against EPF: For an employee, the EPF is a long-term investment with a view to his retirement. If you are an employee on unpaid leave or facing a reduction in salary, you can benefit from an advance on your EPF while continuing to work. Following the coronavirus lockdown, an employee can withdraw 75% of their EPF balance up to a maximum of 3 months’ salary (Basic + DA) as a non-refundable advance.

Previously, any withdrawal made before the end of 5 years of service was taxable income for the employee. However, now the government has made this advance non-refundable due to the coronavirus lockdown fully tax exempt.

In the event that you lost your job, you would be entitled to an EPF balance of 100% after two months of unemployment. You can make this claim online if you have updated your UAN with Aadhaar, PAN, bank account and linked it to your mobile.

Partial withdrawal from the national pension system (NPS): There are many partial withdrawal options offered under the NPS. Critical illness is one such option and the PFRDA has now included Covid 19 as a critical illness for which policyholders can make partial withdrawals. You can withdraw up to 25% of your total contributions. However, to exercise this option, your NPS account must be at least 3 years old.

Partial withdrawal or loan against PPF: If your PPF account has been completed between 2 years and 6 years then you can take out a 25% loan on your PPF balance at the end of the second year before the request. This loan comes with an interest rate of 1% which is one of the cheapest loans. You must repay this money with interest within 3 years. Until the moment you pay the money back, your borrowed money ceases to bear interest.

However, if your PPF account is over 6 years old, you can make a partial withdrawal from your PPF account. Only one partial withdrawal is allowed per year.

Loan against FD: The interest rate on term deposits has been falling steadily, reaching around 6% in most major banks. If you hold a long-term old FD at a higher interest rate, liquidating that FD may not be a good idea. You can take out a loan against it. Most banks offer loans against FD at an interest rate of 1% to 2%.

Loan against financial securities: If you own securities such as bonds, stocks, and mutual funds, you can also take out a loan against those. Most equity investors would have already suffered losses. The only chance to recoup the loss and make a gain is to stay invested for a long time. So, rather than liquidating, it would be better to take out a loan against these securities which will come at a much cheaper rate than an unsecured loan like a personal loan.

Loan for gold – If you are in possession of physical gold, this can help you secure a fair amount of financing without the need for liquidation. The recent surge in gold prices may allow you to secure a larger loan against this asset. You also get a lower interest rate and flexible repayment options.

“Borrowers can opt for the EMI repayment method or a custom option that allows them to repay the interest component on a monthly basis while leaving the principal component to be repaid on the due date. Some lenders also allow the possibility of repaying the interest component at the time of sanctioning the loan. Some lenders also allow the option of late repayment of gold loans whereby borrowers must repay both principal and interest at the end of the term, ”explains Kukreja of Paisabazaar.com.

Should you take out a personal loan?

Without any source of income, it would be difficult for you to get a personal loan. Even if you do, it would be better to avoid a personal loan in such circumstances. An unsecured loan like a personal loan carries a high interest rate and, in the absence of any margin of income, it can lead to a debt trap. In such a situation, it will be better to go for a major expense cutting exercise and liquidate some assets to manage the time until you get the income you want.

However, if your job, profession or business is intact and you are facing a temporary pay cut or loss of income, you may want to consider a personal loan with no savings or assets on which to pay. support you. A personal loan only makes sense when you are faced with a temporary cash flow shortage and your regular income is not disrupted or is very likely to get back on track soon. Even when opting for a personal loan, you should check with your bank or credit card provider for any pre-approved loan offers. Often these come at very low interest rates.

Also read: Coronavirus Loan Moratorium – How to Suspend, Continue or Get Repayment for IMEs

Read also: Impact of the coronavirus: should you pay your IME or not?