Long-term financial instruments such as Public Provident Fund (PPF), Employees’ Provident Fund (EPF), National Pension System (NPS) and unit-linked insurance policies (Ulips) allow partial withdrawals to meet emergency expenses such as medical treatment costs or even planned expenses such as higher education or purchase of a house. While withdrawals do reduce the long-term capital growth from the investment corpus in these instruments, these are still better than taking a personal loan at interest rates of 10-25% per annum.
Partial withdrawal from PPF, EPF, National Pension System (NPS), unit-linked insurance policies (Ulips), which have a lock-in period, can not only help an individual tide over the immediate financial shortfall, but also make the investments grow with further contributions and the compounding benefits. Experts suggest that in case of partial withdrawal, individuals must top up the investment once their financial position improves and there is a regular cash flow.
Public Provident Fund
A PPF subscriber can withdraw money after the fifth year of opening the account. The maximum amount of withdrawal will be 50% of balance available after the completion of the fourth financial year. If the account is extended for five years with contribution after the completion of 15 years, then the subscriber can go for partial withdrawal of 60% of the corpus at the beginning of the extension period.
The amount withdrawn is tax-exempt as PPF is in the exempt-exempt-exempt category. Investors will have to submit a Form C at the respective bank branch linked with their PPF account with all the relevant details. In case of any partial withdrawal, one must try to invest the maximum limit of `1.5 lakh in the next financial year, preferably between April 1 and April 5.
Employees’ Provident Fund
In case of marriage of an EPF the subscriber or his siblings or his children or higher education of children, up to 50% of the employee’s share can be withdrawn after the seventh year of membership. The number of such withdrawals is capped at three.
In case of purchase of house/flat/ construction of house including acquisition of site, a subscriber after five years of membership can go for partial withdrawal. For purchase of site, maximum withdrawal is 24 months of basic wages and DA; for purchase of house/flat/construction it is 36 months of basic wages and DA or total of employee and employer share with interest or the total cost, whichever is least. For repayment of outstanding principal and interest of a home loan, a subscriber after 10 years of membership can withdraw 36 months of basic and DA or the total of employee and employer share with interest or the total outstanding principal/interest, whichever is least. Even for home renovation, a subscriber can withdraw 12 months of basic salary and DA or employee’s share with interest or the cost of renovation, whichever is lower.
National Pension System
A subscriber of National Pension System Tier 1 account can go for partial withdrawal after 10 years of membership for an amount not exceeding 25% of his contributions, excluding the employer’s contributions. The partial withdrawal can be for higher education or marriage of the subscriber or his children, construction of a residential house or a flat, treatment of specified illnesses. Only three partial withdrawals are allowed and that too with a gap of five years between each withdrawal.
As there is no upper limit of contribution in NPS for the private sector, one should try to maximise the contributions in subsequent years after the partial withdrawal.
Unit-linked insurance plan
A policyholder can take out a part of his accumulated fund in a unit-linked insurance plan (Ulips) after the lock-in period of five years provided all premiums have been paid. While insurance companies specify the limit depending on the policy terms and conditions, in most cases the maximum limit is 25% of the total fund value. The sum assured of the policy will decrease after the partial withdrawal. Moreover, there is a cap on the number of free partial withdrawals fixed by the insurer and after that a fee is charged by the company.
FUNDING NEEDS
- Check out the terms for withdrawing money from PPF, EPF, NPS or Ulip investments
- While a withdrawal will reduce the long-term capital growth, it is better than taking a personal loan at 10-25% interest rates
- In case of partial withdrawal, top up the investment once your financial position improves and there is a regular cash flow
