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Managing Emergency Funds During This Pandemic

The coronavirus spread has brought the world to its knees. This pandemic has caused disruptions in everybody’s lives. Those who are not directly affected by the virus are definitely affected by its collateral damage. Companies are reducing their workforce or cutting salaries to survive this testing period.

If you are an employee, business owner, or a self-employed professional, you are likely to face income disruptions in your life at this time. When your income is low and an emergency strikes, it can leave you in a pickle, especially if you don’t have an emergency fund to rely on. The worst thing about an emergency is no one knows what it would be, when it would strike, how badly you’ll be affected, or how long it will last. Therefore, financial experts recommend having at least six months of your living expenses saved in an easily accessible account to help you get through a financial emergency.

If you have six months of living expenses in an emergency fund, you will be able to weather the storm easily. But if you are living paycheck to paycheck with no emergency fund or insufficient emergency fund, you need to make alternative sources for financial requirement:

Liquidation or Loan? How to decide?

When you are looking for alternative sources of income, you need to evaluate your financial situation.

If you have a temporary or partial loss in income, then taking a personal loan to get through the storm makes sense.

But if you have lost your job, or suffering from severe business disruption, and you have no idea of when things will stabilize, then taking a loan may not be a good option as you will not be in a position to afford a liability. So, in a situation like this, you can consider liquidating some of your investments.

Here are some investments you can consider liquidating to manage finances in pandemic:

1. Provident fund

Provident fund is a long term retirement investment plan. Due to the COVID-19 pandemic, if you are an employee who is currently facing pay cuts or on leave without pay, you are allowed to withdraw 75% of your EPF balance or up to a maximum of 3 months’ salary (Basic + DA). This withdrawal will be treated as a non-refundable advance, completely tax-free.

Note: Previously, any withdrawal made before you complete 5 years of service was taxed.

If you’ve had a job loss, you are then eligible to withdraw 100% of your EPF balance after 2 months of unemployment. You can make this claim online. However, ensure that you update your UAN with PAN, Aadhaar, and bank account to have access to the PF account on your mobile.

2. Retirement fund

The Pension Fund Regulatory and Development Authority of India will allow the participants of NPS (pension scheme for the state, central governments, corporates, and autonomous bodies) to make partial withdrawals for covering their expenses. However, this scheme is not applicable to Atal Pension Yojana.

3. Tax refunds

In the wake of coronavirus pandemic, the IT department has announced that it will issue pending IT refunds of up to ₹ 5 Lakh to individuals and businesses.

4. Loan against FD

If you hold a long-term FD, which is at a higher interest rate, then liquidating that FD may not be a wise decision because you will lose the high-interest rate you are enjoying (currently, the interest rate on FDs is declining, and is now at 6%). Rather you can take a loan against your FD at an interest rate that can range from 1 to 2%.

Let this pandemic be a wakeup call to people who do not believe in keeping money aside for emergencies. Make it a habit to save money each month until you save at least six months of living expenses. Or at least keep a ready line of credit to use whenever an emergency strikes. MoneyTap offers a personal line of credit that you can keep handy and use whenever you are in need of funds.

Shiv Nanda

Shiv Nanda is a financial analyst at MoneyTap who loves to write on various financial topics online. He also advises people on financial planning, investment choices and budgeting skills, and helps them make their financial lives better.


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