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Planning Finances During a Worldwide Crisis
The world is going through an unprecedented crisis due to the Coronavirus pandemic. What began as a health calamity has now transformed itself into a full-blown economic crisis which has not only affected large industries and national economies, but also individuals’ and households’ financial situation. According to an estimate by IMF, the global economy is expected to contract by 4.9 per cent in 2020. 
 
Closer to home, India’s GDP saw a contraction of 23.9 per cent in April-June quarter, and is expected to fall by around 9 per cent (as per Asian Development Bank’s estimate) in the full calendar year. Because of this contraction in economic activity, a large number of people have already faced salary cuts, or even job losses, and more are expected to follow. Many are facing severe liquidity crunch due to the contraction in economic activity. As per a joint study by the International Labour Organization and the Asian Development Bank, around 41 lakh youth lost jobs in India due to the COVID crisis.
 
The role of financial planning
Crises are not a new phenomenon. Every generation has faced some or the other form of crisis, has overcome it and emerged out stronger. One must remember that in most cases, it is impossible to predict the next crisis, but one can always be prepared to effectively respond to it by proper financial planning. The silver lining amid all the gloom is that the current crisis has also led to a lot of unplanned savings during this time as one did not spend on things like restaurant visits, transportation, vacations, leisure activities and so on. One can use this unplanned extra reserve to build a stronger foundation for a stable future.
 
To make this journey towards financial stability smoother, here is a list of actions one must take to protect themselves from unanticipated events and crises.
 
1. Build a rainy day fund: While the jury is still out on the exact amount of this emergency fund, one must have enough to cover their expenses for at least six months without any income. Some experts recommend one year’s expenses. However, this fund is not the same as the extra money parked in your savings account from which you also make your monthly expenses. A rainy day fund has to be a specific liquid fund which should be interfered with only when there is an actual emergency. The kind of emergencies that warrant the use of this rainy day fund are job losses, unplanned medical treatments, sabbaticals and other such events.
 
The benefits of having an easily accessible source of lump sum money are many. However, since it takes time and a lot of self-discipline to build such an emergency fund, many people avoid making this effort in the first place. But once it is built, it improves one’s confidence and the ability to deal with any unforeseen event.
 
2. Reduce discretionary spending: The lockdown imposed by the government was a difficult time for most people, but it also forced many into saving money. It has also brought a realisation for many that one can live within their means without much difficulty. Remember that saving is the first step towards investment. And reducing discretionary spending can help one make that first step. The idea is to reduce those expenses that one can live without and use that extra saved money towards achieving one’s financial goals. 
 
3. Manage high interest liabilities: Debt coupled with compound interest is a lethal weapon in personal finance that can put a major dent in one’s finances. Left ignored, the debt can grow to enormous proportions, beyond your ability to repay it. That’s why one must pay off high-interest dues like those of credit cards and personal loans, regardless of one’s financial situation. In fact, one must avoid such liabilities and pay them off at the earliest.
 
4. Invest in mutual funds: Mutual funds offer different kinds of investment products for different financial goals — creating an emergency fund, investing in lumpsum, planning for retirement, or investing for children’s education or marriage. Investing in mutual funds is easy and accessible for everyone. Mutual fund schemes have become mainstream now due to paperless on-boarding, online payments and a host of other services. One can start by exploring a mutual fund lumpsum calculator to find out the amount to be invested to reach their financial goals. If one wants to invest every month, they may also use an SIP calculator. Both are easily available online. One can invest in any category of mutual funds based on their risk profile. 
 
5. Write a will and buy a term insurance plan: The imposed lockdown has brought people closer to their family. To ensure financial security and happiness of one’s dependents even in your absence, it is a good idea to write down your Will. A will can be written on any regular sheet of paper, but it should be very clear of the assets you hold and the persons that you want to bequeath them to. Ensure that you sign it in front of at least two witnesses who are not related in any way to your broader family, and tell the witnesses to sign it as well.
 
In case you have not purchased life insurance, then it is crucial to have one with a cover amounting to at least 10 times your annual gross income. These two actions would go a long way to secure the future of your loved ones in your absence, especially during times of a global pandemic.
 
There is no doubt that this pandemic is likely to continue to impact everyone’s personal finance for some time to come. There is also no way to predict when and how the next crisis would hit us. But what one can do is prepare for such uncertainties. The good news is that it’s never too late to prepare yourself for what’s to come, be it in personal life or in terms of financial one. The best day to start on this journey towards financial stability is always today!
 
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    COMMENTS

    s5rwav

    2 months ago

    Indian Oil Corporation Limited Retirees on Pittance Permanently Fixed Pension are the Victims of the Hardcore Criminal Board of Directors of Indian Oil Corporation Limited. I am Babubhai Vaghela from Ahmedabad. Thanks.

    How to extend your PPF account with or without fresh contributions
    Public Provident Fund (PPF) continues to be one of the most preferred tax efficient savings products in India to build a retirement corpus. PPF investments of up to Rs1,50,000 (per financial year) are eligible for tax deduction under Section 80C, and the amount received on maturity is tax-exempted. The interest earned is also tax-free. Thus it is one investment vehicle, which enjoys the EEE (exempt-exempt-exempt) status. Moreover the returns are guaranteed and risk-free. 
     
    PPF accounts have a lock-in period of 15 years but many people are unaware that it can be extended (with or without fresh contributions) indefinitely (in five year blocks) at the end of the maturity period. Upon completion of 15 years, the entire amount standing to the credit of an account holder in the PPF account along with the accrued interest can be withdrawn freely (by submitting Form C) and the account can be closed. However, financial planners recommend that you continue renewing your PPF account in blocks of five years for the magic of compounding to continue. There is no limit on the number of times you can extend. 
     
    If your retirement is far away, then you can opt to continue the PPF account with fresh contribution so as to continue building your corpus while enjoying tax benefits.
     
    It is a better idea to submit Form H and extend the account for five more years since it takes just a minimum credit of Rs500 every year to keep the PPF account active. Although, 40% of your corpus remains locked-in till the end of five years, you always have the option to go for partial withdrawals and still reap the benefit of compounding on the account balance.
     
    Here we share details about extending your PPF account on maturity. 
     
    After completing 15 years, the account holder has to inform the post office or bank within one year whether he/she plans to continue with deposits or not. In case the account holder fails to inform the post office or bank within the one-year time span, the account holder will have to either withdraw the full balance or extend his/ her PPF account without fresh contributions.
     
    Extending PPF account without fresh contributions:
     
    In case you decide to retain your PPF account after maturity without making any new contributions, then you do not have to inform the post office or bank by submitting any form. The account balance will continue earning interests until the day you close it. 
     
    Partial withdrawals: You are allowed to make one withdrawal once every financial year. There is no limit on the amount you can withdraw. The remaining balance in the account will continue to earn interest. It should be noted that only one withdrawal is allowed every financial year.
     
    Extending PPF account with fresh contributions:
     
    The account holder needs to intimate the post office or the bank that they wish to continue their PPF account with fresh contributions by submitting a Form H. In case this Form H is not submitted by the account holder, the PPF account will be treated as irregular and no interest will be paid on the fresh contributions. If the form is not submitted and yet contributions are made then no tax benefit under section 80C (of the Income Tax Act) will be available for the account holder.
     
    Partial withdrawals: In case the account holder decides to continue his account with fresh subscriptions, then he/ she can withdraw up to 60% of the account balance at the beginning of each extended period (block of five years) in one or more installments, but only one withdrawal is allowed per year.
     
    E.g. Let us assume that your PPF account is ending on 31 March 2021. The balance at that time in your account is let’s say Rs 45 lakhs. Now, you could either opt to continue the account for five more years (i.e. till 31 March 2026) and continue to invest regularly or you can withdraw only Rs 27 lakhs (over those five years, but only one withdrawal is allowed every year) which is 60% of 45 lakhs (which is your account balance as on 31 March 2021 when you are commencing the five year extension). Account holder needs to submit Form C for partial withdrawal. 
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    How to Withdraw and Transfer your Provident Fund Money
    Provident fund (PF) or employee provident fund (EPF) is a popular government of India run scheme, which functions as a useful social security net for individuals employed with eligible organizations. Under the scheme, the employees contribute around 12% of their basic pay plus dearness allowance towards the EPF pool on a monthly basis. A corresponding amount is contributed by the employer. The returns are recalibrated by the union government periodically and currently provide a decent 8.65% per annum for FY2018-19. 
     
    Thus, over a period of time, the cumulative contributions result in a corpus that can provide monetary support during the retirement years. While PF is a very sound investment, in times of extreme emergency, however, the amount could be withdrawn, prior to retirement as well, subject to certain conditions. We shall look at the situations under which an employee can withdraw and transfer the EPF.
     
    To facilitate smooth portability of employee EPF records, the EPFO mechanism functions with the help of universal account number (UAN). Allotment of UAN to the employee is mandatory, whereby the UAN would be linked to the employee’s EPF account.
     
    Details about EPF Withdrawal
     
    One has the option to withdraw EPF completely or partially. But any withdrawal of EPF before five years of continuous employment attracts tax. The following are the situations under which EPF can be withdrawn.
     
    • Complete withdrawal of EPF is permitted under the following situations:
     
    a. Upon retirement from employment
     
    b. In the event that an individual remains unemployed for a period of two months or more, withdrawal is subject to attestation by a gazetted officer. 
     
    • Partial withdrawal of EPF is allowed in the following circumstances, subject to stipulated conditions, with self-attestation facility:
     
    a. Marriage: For the purpose of marriage of self, son/daughter and siblings i.e. brother/sister
     
    • Ceiling on withdrawal limit: Upto 50% of the employee’s contribution towards EPF
    • Minimum number of years in service: This facility can be availed in case of at least 7 years in employment
     
    b. Education: Towards funding education for self (i.e. employee) or his/her children post completion of class 10
     
    • Ceiling on withdrawal limit: Upto 50% of the employee’s contribution towards EPF
    • Minimum number of years in service: This facility can be availed in case of at least 7 years in employment
     
    c. Acquisition of land or house property or construction of house property: The capital asset should be owned by either the employee, the employee’s spouse or owned jointly
     
    Eligible withdrawal amount:
     
    • Asset is land – Ceiling limit is up to 24 times the sum of monthly wages and Dearness allowance
    • Asset is house property – Ceiling limit is up to 36 times the sum of monthly wages and Dearness allowance
    • Minimum number of years in service: This facility can be availed in case of at least 5 years in employment
     
    d. Repayment of home loan: Partial EPF withdrawal is subject to fulfilling following conditions
     
    • The said property should be registered in the name of either the employee, the employee’s spouse or in joint name
    • The employee would have to submit relevant documents to the EPFO, validating housing loan availed 
    • The cumulative amount in the employee’s EPF, either singly or along with the spouse, including the interest component should exceed Rs20,000
    • Ceiling on withdrawal limit: Up to 90% of the cumulative contribution of employee and employer towards EPF
    • Minimum number of years in service: This facility can be availed in case of at least 10 years in employment
     
    e. House renovation: The concerned property should be registered in the name of either the employee, the employee’s spouse or in joint name
     
    • Ceiling on withdrawal limit: Up to 12 times the monthly wages earned
    • Minimum number of years in service: This facility can be availed in case of at least 5 years in employment
     
    f. Upon reaching 57 years of age: 
     
    • Ceiling on withdrawal limit: Up to 90% of the available amount, including interest
     
    Withdrawal procedure: The employee can either submit a physical form or submit an online application.
     
    Steps involved in case of submission of physical form:
     
    Aadhaar based: The employee needs to submit the composite claim form (Aadhaar) at the regional EPFO office. This does not need attestation by the employer.
     
    Non-Aadhaar based: The employee needs to submit the composite claim form (non- Aadhaar) at the regional EPFO office, along with employer attestation.
     
    Steps involved for online submission of form
     
    • This is facilitated by withdrawal of EPF online through the EPF website. The following are the prerequisites for smooth EPF withdrawal and elimination of the need for employer attestation:
    • It is mandatory that the UAN is activated with a valid registered mobile number. 
    • UAN needs to be linked to one’s KYC along with one’s bank account.
     
    Broadly the steps include: 
     
    • Logging into the EPFO website using one’s UAN and password. 
    • Following this, one needs to access the Claim section in the Online services tab. 
    • Upon selection of Proceed for online claim, one needs to fill in the claim form. 
    • Under this, the employee would need to select either of the 3 options in I Want to Apply for tab:   full EPF Settlement, EPF Part withdrawal (loan/advance) or pension withdrawal. 
    • In case being ineligible, the options would not be displayed in the drop-down menu
    • Submit the form
     
    Details about EPF Transfer
     
    In case of a job change, it is advisable to transfer the EPF balance to the current employer. The following are the prerequisites for smooth EPF transfer:
     
    • Approval of e-KYC by employer
    • The previous or current employer should have registered authorized signatories in the EPFO
    • The EPF A/c no of previous as well as current employment should be entered in the EPFO portal
    • A single transfer request against the previous member ID would be accepted
    • Broadly the steps comprise
    • Logging into the EPFO website using one’s UAN and password. 
    • Following this, one needs to access the one member – one EPF account (transfer request) in the online services tab. 
    • Verification of current employment details
    • Selection of either previous or current employer for claim form attestation
    • Validate with OTP based approval of UAN
    • Upon receipt of the form via the unified EPFO interface, the employer would digitally approve the EPF transfer request 
    • Print the form 13 i.e. transfer claim form and submit within 10 days to the selected employer
     
    These are the procedures involved and the situations under which, one is permitted to withdraw and transfer the EPF. However, it must be remembered that the EPF is a useful tool to build a sizeable corpus towards one’s retirement years. Further, the corpus is protected and interest as well as accumulated corpus is tax-free, PF should form a core part of your fixed income investments and so withdrawal should be avoided, to the extent possible. 
     
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    COMMENTS

    Madhu Jewellery Vetti

    1 year ago

    Dear all I'm really in very bad situation pls give me chance to withdraw my pf money bcoz of my employer didn't exist me in PF portal and they are refusing to provide UAN NUMBER

    PLEASE IF ANYONE KNOW PLEASE SHARE HERE

    Chandragupta Acharya

    1 year ago

    Very useful article. Thanks

    ROHIT SAXENA

    1 year ago

    Its sad that EPFO is openly violating the SC order and no one is bothered to take notice. As per SC order on Aadhar, Aadhar is not mandatory for those who earn more than 15K, but EPFO insist for Aadhar for opening account.

    REPLY

    Mukunda Deka

    In Reply to ROHIT SAXENA 1 year ago

    It is easy to target salaried/ white money earner middle class. They are sand witched by taxes and lots of other new tactics. They have no priviledge card to enjoy any thing on concession. A salaried tax
    Black money earners still amassed huge money ebrry day. They donot make it whole as earnings. They even did not forego the LPG susidy.

    bharat Rajyaguru

    In Reply to Mukunda Deka 1 year ago

    Bharat rajyaguru plz help I am 7 year countinyu pf and this time deseboll to 60 /work EPFO any help????

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