Covid-19 survival package: Cash crunch? Take loan against investments
As the coronavirus pandemic has stalled economic activities leading to loss of income for many individuals, various measures are being taken by the government, Reserve Bank of India and banks to provide support to those facing a cash crunch.
While the Centre has allowed employees to avail a non-refundable advance from their Employees’ Provident Fund (EPF), RBI has announced a three-month moratorium on term loans and credit card dues and banks are offering Covid-19 personal loans of up to Rs 5 lakh to existing borrowers or those holding salary or pension accounts with the bank. The interest rate on these loans is 7.2-10.5% per annum as compared to 9-24% for a regular personal loan.
You can also liquidate certain investments or take loans against life insurance plans, mutual funds, stocks or Public Provident Fund (PPF) account to tide over the cash crunch. The interest rate on such loans will be much lower than personal loans and disbursment will be quick.
Withdrawal from EPFO
A salaried employee can withdraw up to 75% of the outstanding balance in his EPF account or three months basic plus dearness allowance, whichever is lower. The outstanding amount includes employee’s share, employer’s share and interest. An employee can apply online for the advance through the EPFO portal and fill up claim form-31, 19, 10C & 10D. One has to upload a cheque leaf containing the printed name, or the first page of the bank passbook or bank statement containing the name, account number and IFSC. EPFO is settling claims for Covid-19 pandemic advance within three working days.
Loan from PPF account
An individual with a PPF account in a bank or a post office can avail loan against his investments. The loan can be taken after the expiry of one year from the end of the year in which the initial subscription was made but before expiry of five years from the end of the year in which the initial subscription was made. The loan amount will not be more than 25% of the outstanding amount at the end of the second year immediately preceding the year in which the loan is applied for.
An account holder shall not be entitled to get a fresh loan so long as earlier loan has not been repaid in full together with the interest. The principal amount will have to be repaid by the account holder before 36 months. The repayment may be made either in one lump sum or in instalments.
After the principal amount of the loan is fully repaid, the account holder will then pay the interest in not more than two monthly instalments at the rate of 1% per annum of the principal for the period commencing from the first day of the month following the month in which the loan is drawn up to the last day of the month in which the last instalment of the loan is repaid. If the loan is not repaid, or is repaid only in part, within a period of 36 months, interest on the amount of loan outstanding shall be charged at 6% per annum instead of at 1% per annum with effect from the first day of the month following the month in which the loan was obtained, to the last day of the month in which the loan is finally repaid.
Loan against life insurance policies
Banks give loan to a policyholder against traditional life insurance policies, including endowment and money back plans and unit-linked insurance policies. However, banks do not give loan against term plans. The loan will be against the surrender value of a whole life insurance policy if he has paid premiums for at least three years. The loan amount will be decided on the surrender value, which can be up to 80% against traditional plans with guaranteed returns. For linked plans it will be on the fund value. The loan has to be repaid during the term of the policy.