Struggling With Financial Problem? Know How Much You Can Partially Withdraw From Your Existing Savings

Govt employee unions to hold rally in Delhi on August 10 for restoration of Old Pension Scheme

What do you do when you need emergency cash? Many of us sell our entire investments, even if we want just a little bit of cash. And then, we fritter away the rest of the money instead of reinvesting it. But there are some investments that allow for partial withdrawal. With food inflation and rising loan rates pinching household budgets, it really doesn’t make sense to borrow money. A personal loan charges 18-21 percent interest per year.
Credit cards charge 38-41 percent per year in interest.

Instead, here’s what you should do.

New Pension Scheme

After you have completed three investment years, you can partially withdraw funds from the New Pension Scheme (NPS). The amount is restricted to 25 percent of the own contributions for a maximum of three times during the lifetime (five years apart).

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These are permitted for higher education and marriage of children, purchase / construction of a house, treatment of illnesses, disability of more than 75 percent, re-skilling or self-development, establishment of start-up.

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If you have joined NPS after completing 60 years, then you would be given only 20 percent as a lump sum, and the balance would have to be used to purchase an annuity. Here as well, you need to complete at least three years before you can partially withdraw.

Fixed deposits

Depending on the nature of the fixed deposit (FD) that you have booked, banks allow you to partially redeem the funds. This facility is, however, not available with banks through net banking. For premature withdrawal, the rate of interest is reduced. So, if you withdraw only 25 percent of your FD amount, then the interest applicable to that 25 percent only is reduced. The balance of 75 percent is offered at the originally promised interest rate.

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If you want to avoid breaking your FD, you could use a sweep-in or flexi FD account that calculates the balance available during different periods of the month and the interest rate is accordingly credited.

Life Insurance

Under life insurance products, unit-linked insurance plans (Ulips) allow you to draw out money from the funds invested (excluding the mortality premium diverted towards insuring your life). But there are several conditions to it. Firstly, one needs to be at least 18 years old and should have completed five policy years. Additionally, all the premiums during the first five years should have been paid. If for instance, you missed paying the premium on the second policy anniversary, then you wouldn’t be eligible for partial withdrawal.

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Every life insurance company sets its own rules around the maximum amount you can withdraw before maturity. Usually, a maximum of 20 percent of the money available in the investment pool – also known as fund value – is permissible for partial withdrawal. This cap is fixed annually and varies with the policy you hold.

Public provident Fund

The provident fund account available to individuals has a tenure of 15 years. But one is permitted to withdraw half the amount available after seven years from your initial contribution. But these withdrawals are restricted to one per year.

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You can't, however, withdraw to purchase a television set or set sail for a holiday. The partial withdrawal Form C would require you to state the reason why you wish to withdraw. It would be permitted only if you (or your dependents) are undergoing treatment for a life-threatening disease, receiving a higher education payment, or seeking a residency status change.

Also read: What to do with your PPF at maturity? 

Employee Provident Fund

The Employee Provident Fund (EPF) account offers a wider option for withdrawal of funds that you have accumulated over the course of your employment, across companies. Now that the EPF account remains intact for every individual even after job change, the money is accumulated in it under the Universal Account Number (UAN).

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You can seek partial withdrawals under the EPF account for reasons such as home or plot purchases, home renovations, medical treatment of self or your dependents, and even for the higher education of your siblings or children.

During phases of damage due to natural calamities, such as earthquakes and floods, you can request a partial withdrawal using Form 31. However, the amount you can withdraw and the time limits on each are different, depending on the reason.

For instance, withdrawal for the purchase of a house is allowed after the fifth year, but seeking funds for repayment of a home, loan is permitted after 10 years. In both circumstances, you would get 36 months of basic salary and dearness allowance. But, those looking to purchase land would get only the funds for up to 24 months of basic pay and DA.

After the age of 54 years and one year before retirement, you are allowed to withdraw 90 percent of the amount in the EPF account. Also, you can withdraw the entire balance if you have been unemployed for more than two months.

Most of the instances would require you to get an attestation from a gazetted officer. But do not forget the impact of taxation on these premature withdrawals, as 10 per cent tax deducted at source (TDS) is levied for premature withdrawals exceeding Rs 50,000. If you do not submit your permanent account number (PAN) you would have to shell out 34 percent as TDS.

Senior citizen savings scheme

This instrument has been popular among senior citizens due to the interest payouts at regular intervals and the enhancement in the overall investment limit to Rs 30 lakh. The tenure of the Senior Citizen Savings Scheme (SCSS) is five years, and though one cannot partially withdraw from this savings pool, one can prematurely close the account by submitting Form 2 after a year of investment.

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Charges are levied as a percentage of the total deposit in the case of premature closure, depending on the time of withdrawal. If you withdraw before the completion of one year (no interest paid), after one year (1.5 percent charge), and after two years (1 percent) charge.
If you have extended your SCSS account after completing five years, then you need not pay any penalty after one year (five plus one year of extension).

RBI Bonds

Recently, the RBI Floating Rate Savings Bond, which has a maturity period of seven years, has permitted premature withdrawals only for senior citizens. However, partial encashment of the amount invested in these bonds is not permitted.

Based on age, you can prematurely close the account at the end of six years (60-70 years), five years (70 to 80 years), and four years (80 years and above). But the penalty is a steep 50 percent shave off the interest due and payable for the last six months of the holding period.

Sovereign Gold Bonds

Even though this new investment option of Sovereign Gold Bond has a tenor of eight years, you can redeem it after the fifth year from the issuance date. Though there is no partial withdrawal, you can trade the bonds on exchanges, if you have requested for the demat option.

For premature redemption, investors need to approach one to 30 days before the coupon payment.

But before you apply, you would have to refer to the dates released for submission of redemption requests. For instance, the tranche of 2016-I could submit redemption requests between January 9 and January 30, 2023.

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You will be paid the simple average of the closing price of gold with 999 (it is 999 out of 1,000) purity of the previous three business days from the date of redemption. This rate is as per the published rate by the India Bullion and Jewellers Association Ltd (IBJA).

Kisan Vikas Patra

Once opened, the Kisan Vikas Patra scheme has a maturity period of nine years and five months. But premature withdrawals are permitted after the minimum lock-in period of 30 months by submitting Form 3 at the post office. This is also permissible in case of death of the account holder or joint holder, or if the withdrawal is instructed by a court or a part of forfeiture after being pledged.

Once you withdraw you would get the principal amount along with simple interest for the period you maintained the KVP account. So, if you withdraw your investment of Rs 1,000 after three years then you would get back Rs 1,211 and if you withdraw after three years and six months then you will be handed over Rs 1,251.

Should you withdraw?

You would need a set of documents to prove the need for funds, along with the mentioned forms. When you withdraw the funds, some investments like the Employees’ Provident Fund Organisation (in charge of your EPF), can send the money directly to the education institute (if that is what you are withdrawing for), or your bank or finance firm from where you have borrowed to buy a house. Or, you could get the money directly into your bank account. Understand the conditions before you plan your withdrawal.

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In case of NPS, life insurance or investments with growing value, you would lose on the growth that the investment avenue offers. So, always compare the interest and potential growth before withdrawing partially.