The need for urgent funds has spiked during the ongoing Covid-19 crisis, which has led to a rise in hospitalisation and treatment costs. The cost of procuring critical medicines and oxygen has also gone up due to an acute shortage.
Many Covid-affected families are borrowing from banks to meet urgent fund requirements for treatment and hospitalisation. However, not all urgent loan requests may be entertained by banks due to poor credit score or a high amount of existing loans.
Here are some options that individuals can explore for urgent funds if their bank loan request has been denied or put on hold:
WITHDRAW FROM PF FUND
Salaried employees who are not in a position to borrow from banks can withdraw from their Provident Fund account. While it is not ideal to withdraw from a PF account, considered a retirement corpus, one can use the option in case of a medical emergency. It may be noted that withdrawal of PF is allowed in some special conditions: medical emergency, purchasing land or property, buying a house.
Any salaried employee who has a medical emergency in the family including Covid-19 can partly withdraw money from PF. The fund can be withdrawn if the account holders immediate family members — spouse, children or parents — are facing a medical emergency. According to a tax expert who spoke to livemint.com, a PF account holder can withdraw up to six times a month’s basic salary or net contribution plus interest, whichever is lower.
It is worth noting that there is no lock-in period or mandatory service period for fund withdrawal when someone in the family faces a medical emergency. For withdrawal from the PF account, an individual will be required to produce hospital bills and other required hospitalisation documents to prove critical illness or high cost of treatment.
MUTUAL FUND REDEMPTION
Another way to meet your urgent fund requirement is by mutual fund redemption, which essentially means selling fund units. Though professionals advise against withdrawing or selling mutual fund units soon, individuals can do so in case of a medical emergency.
While there are some drawbacks like taxable capital gains, it is ideal to access quick funds during a medical emergency. It may be noted that the taxability of capital gain depends on the type of mutual fund and the period it has been held for.
You can request your asset management company (AMC) for redeeming units through their online portal. You can either choose to sell all your units or some, depending on your fund requirement. You can also physically visit the AMC’s office. After the request is processed, you will get the redemption amount via NEFT or a cheque will be sent to your registered address.
However, if you are in need of urgent funds, using the online portal is ideal as the amount gets credited in just a day or two. You can also redeem/sell mutual fund units using your trading/Demat account. After the process is complete, the payment will be received via NEFT or IMPS payment to the bank account registered with the Demat account.
FD WITHDRAWAL & SAVINGS ACCOUNT
Individuals can also withdraw from their fixed deposits (FD) in case of a medical emergency or financial crisis. One must ensure that their FD comes with a premature withdrawal facility.
A fixed deposit account with a premature withdrawal facility allows the depositor to close the FD before the date of maturity, providing relief during an emergency fund situation.
The bank may charge the depositor a penalty between 0.5 per cent to 1 per cent for premature withdrawals. However, this rate may vary on the tenure and the bank’s personal policy.
For those individuals who maintain a savings account, the withdrawal process is the simplest and does not come with any charges. It offers ready cash access at all times and there are no caps of withdrawal.
These are some options that individuals can use to access emergency funds without borrowing from banks. However, those who are willing to borrow from banks and financial institutions can click here to see a list of options.