Emergency Fund

EMERGENCY FUND : - A very commonly given financial advice, but not so commonly implemented across.

What is Emergency Fund?

Easily accessible chunk of money for use, in case of any kind of emergency. It should not be used to buy a car/house/laptop/ or any other thing.

How much Fund is enough for Emergency Fund?

enerally, 6 to 8 months monthly total expenses/spending(total expense include all expenses including loans and credit cards payments, household bills etc.,)

Why 6-8 months total expenses? If any emergency happens, one will be able to live the same life style for at least 6-8 months without taking any further stress.

Why to have an emergency fund?

If any unexpected expenses come up, you can use this fund as it will not affect your future cash flows. One can use the fund in case of some critical situation like Job loss or unexpected medical bills or any critical illness.

How to plan for such a big fund of 6-8 months expenses?

Start Little:

Start putting 1000 or 2000 a month & slowly you can add up into that.

Automatic deductions from your salary:-

An ECS into Fixed Deposit or Money Market Mutual funds.

Treat it like it’s your Monthly Bill:-

You can treat the emergency fund as your monthly bill & put it in a seperate bank

account with ATM card facility.

Add your Bonuses :-

If you get a Bonus or a salary Hike, you can put that excess amount into emergency

fund building.

- Manan Mankad

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PPF- Public Provident Fund.- Explained

PPF (PUBLIC PROVIDENT FUND)

•     Eligibility- Individuals, individuals on behalf of minor

•     Min- Rs 500 per annum in multiples of 5

•     Max- Rs 1,50,000- per annum

•     Duration- 15 years, can be extended for one or more blocks of 5 years.

•     Account can be discontinued but the repayment of subscription and interest will    happen only after 15 years.

•    Rate of Interest – 8.70% pa, credited in the account on the 31st of march and calculated on the minimum balance between 5th Day and the end of the month.

•     Loans – During the third to sixth year the account holder can avail the facility of loan of an amount not exceeding 25% of the balance standing to his credit at the end of the second financial year immediately preceding the year of loan application. The principal amount of loan under the PPF scheme is required to be paid either in lump sum or in monthly installments within a period of 36 months. After the principal amount is repaid the interest is to be paid in not more than 2 monthly installments at the rate of 1% per annum calculated for the loan period. If the loan is not paid in 36 months then it would attract an interest rate of 6% pa. Withdrawals – is possible from the PPF account, one withdrawal is permitted per year of an amount not exceeding 50% of the balance standing to his credit at the end of the fourth financial year

•     Clause of – “out of Tax payers income” done away with.

•     Renewal of the PPF account- As per rule 9 (3) of the PPF scheme, a PPF account can be closed by the subscriber at the expiry of 15 years. Rule 9 (3A) provides that on the expiry of 15 year period the subscriber can extend the PPF account for a further block of 5 years

•    Rule 9 (3B) states that the subscriber shall be eligible to make one withdrawal every year subject to the condition that total withdrawals during the 5 year block shall not exceed 60% of the balance at the commencement of the block period.

•    NRI’s , HUF’s cannot invest in PPF A/c’s. However if a resident subsequently becomes an NRI, he can continue to do the investments until the maturity period on a Non- repatriable basis.

•    Investments on behalf of minor- Can also be done (with a limit of 1,50,0000). Since there’s no gift tax, it can be used for their education and this income will not be clubbed with the income of the subscriber.

•     Its free from any attachment by a court but is subject to attach under the order of IT authorities

•     PPF account can be opened only in an individual name and not in joint name.

Manan Mankad

http://www.mananmankad.com/