I recently lost my job where I was earning Rs80,000 per month. After staying unemployed for 5 months, I took up a job that is now paying me Rs50,000 per month. I have an EMI of Rs25,000 for the next 7 years. My investments are—Rs35 lakh in fixed deposits, Rs2 lakh lump sum in mutual funds and Rs5 lakh in PPF. I also have a flat, which I can sell but don’t want to give on rent. I am short by Rs15,000 every month.
Your monthly income coming down has put a pressure on your cash flows. First, check if your monthly take-home salary can be increased. You are earning Rs50,000, expenses are Rs40,000, and the shortfall is of Rs15,000. If there are taxes being deducted from your income, check whether you have optimized tax savings under section 80C of the income-tax Act. If not, then part of your existing savings can be invested in a tax-saving mutual fund (cap of Rs1.5 lakh), called equity-linked savings scheme (ELSS). Another option is to give your apartment on rent. If you don’t want to do that, based on the surroundings and market expectations, you need to decide to hold or sell the property.
Lastly, there is an option of using the income from the existing investment corpus. Most of your investment assets are in bank fixed deposits and a very small amount in mutual funds. You need to reinvest the bank deposits, and do consider mutual funds. You can see options with moderate risk and categories such as equity savings funds, and balanced funds. The monthly income can be started via Systematic Withdrawal Plan (SWP), wherein a regular fixed amount is redeemed every month, but not more than the expected income growth rate of the said asset.
I am 56 and had been working in a reputed company for 30 years. The company closed in August 2014, and it has been more than 3 years since, and the matter is currently in court. Can I withdraw my provident fund (PF) amount before attaining the age of 58? Will I continue to get interest even after 36 months? Should I wait for the case to be decided by the court?
—Name withheld on request
It is not clear why your company had to shut down after being in business for decades. And as the matter is sub judice, it is difficult for anyone to comment on this.
For your query regarding withdrawal of PF, you can surrender and withdraw the deposit. The PF can be withdrawn after you have left the organisation and hence in this specific case, the age of 58 years should not have an impact. You are also eligible for the interest earned on the PF, even though you account has not been operative for 3 years continuously, as the restriction of inoperative account not earning any interest was removed in April 2016. But it would be prudent to follow up with the court proceedings as there could be some restrictions imposed by the honourable court, which you will need to adhere to.
When the Reserve Bank of India (RBI) reduces the repo rate, customers get the benefit of lower rates but when the RBI increases repo rate, is there any effect on marginal cost of funds based lending rate (MCLR)? Will the bank revise its MCLR immediately after the RBI raises repo rate? Is it beneficial for us to convert from base rate to MCLR system?
Whenever RBI reduces the repo rate—the rate at which RBI lends money to banks—it is expected that banks will do the same by reducing the interest rates at which it lends to its customers. However, there is a reasonable time gap and delay between the time when the RBI reduces the repo rate and the time it takes the banks to pass the benefit to its customers. Many a times, the central bank has had to push banks to pass on the benefit. At the same time, the reverse was not true, i.e., when RBI increased the repo rate, the banks were quick enough to pass the burden to their customers. So, to reduce the gap of benefit being passed by the banks, the central bank changed the benchmark of lending rates from base rate to MCLR. You need to review the borrowing cost and check the merits of moving from the base rate to the MCLR rate since there is supposed to be faster impact of any change in interest rates with the latter.
Surya Bhatia is managing partner of Asset Managers. Queries and views at email@example.com.