Adversities can catch anyone unawares but what matters is how you face them. However, when it comes to money matters, adversities are often a result of lack of planning. Many people invest only to build corpus for retirement. There are many expenses which should ideally be accounted for, but are often underestimated. This leads to frequent withdrawals from retirement savings. Salaried people often withdraw money from Employee Provident Fund (EPF) or Public Provident Fund (PPF). Those withdrawing from shares and mutual funds often pop off profit making investments. Although there is no harm in dipping in any of the resources, more systematic approach needs to be followed.

True, many of you may not be ignorant but still might have faced some difficult situations wherein you had to break your investments (which were actually assigned for some other purpose) to meet emergencies. PersonalFN explains how one can effectively utilise available resources for meeting such emergencies.

How to raise money for emergencies?

Prudent approach to meeting emergencies is to make use of contingency reserve. Once that is exhausted you may review your investment portfolio as it may decide which investments you should liquidate. For example, someone approaching retirement may liquidate equity portfolio first before touching debt portfolio. On the other hand, those in the middle age can consider redeeming some part of the debt portfolio as they have long term time horizon and can always make up for it whenever they have some surplus cash available. You should allow your equity portfolio to grow if you have long term time horizon rather than redeem it for emergency purpose. If circumstances are such that money has to be withdrawn from equity portfolio, then you should always first review your equity funds and redeem those which are not performing. Furthermore, taxation and costs should also be given consideration before exiting any of your investments. For example, exiting equity oriented mutual fund before completion of 1 year may cost you 1% of penalty, commonly known as exit load. Selling shares or equity funds acquired within last 1 year would attract short term capital gain tax and eat into profitability of your investments. Similarly, if you break fixed deposits when only few months are left in maturity; you may have to settle for about 0.50% - 1% lesser interest.

If you are not following asset allocation or any investment plan you may find it even more difficult to liquidate investments since you may not be keeping a track of them. It is possible that you may end up selling majority of largecap oriented funds from the portfolio keeping midcap oriented funds which may not be good for you if your risk appetite is low.

PersonalFN is of the view that decision of exiting from a particular investment is crucial and does impact returns generated by your portfolio of investments. You take a holistic view of your portfolio instead of raising funds from convenient sources. Also, it is equally important for you to consider restoring investments that you may have liquidated to meet emergencies. If your portfolio is equity heavy or has considerable weightage to real estate, considering prevailing market conditions becomes imperative. You may face difficulties if your portfolio is tilted towards real estate as liquidation is not an easy task.

PersonalFN doesn’t claim that those following personalised asset allocation won’t encounter financial emergencies. But it believes if they follow asset allocation designed keeping their goals in mind, they would be in a better position to deal with financial emergencies than those who don’t follow it.

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