Emergency fund for companies- CEF (Company Emergency Fund)
Updated: May 6, 2021
I would like to suggest an idea of the creation of a 'Company Emergency Fund (CEF)' for companies in India which can be used in exceptional circumstances like prevailing today. This could be useful in times of a crisis like a World War, a natural disaster, a health pandemic like Covid-19, any other exceptional circumstances.
Every year a certain percentage portion of the profits of any company can be transferred to this emergency fund which can be regulated by a government body similar to EPFO. They can invest these funds in non-risky market instruments. This fund would be deposited in the name of the company itself and can be used during times like today. This will help in reducing the burden of companies during pandemics of any form. As of now, we are seeing many companies struggling to survive and continue their operations, give salaries to their workers/employees, maintain working capital cycles, etc. If a CEF would have been in place it would have been extremely helpful in these turbulent times.
This idea stems from the basic habit of “Saving for the rainy day”. As individuals, we all save for difficult times which we may face at some point in time in our life. A similar thing would be achieved for companies with the introduction of this CEF.
To start off with we can start with 5% of Profit after tax (PAT) which can be transferred to this emergency fund. We can start with all listed companies which have a turnover of over 200 Cr and later on implement it to all companies in India. We can also allow some withdrawal to companies when they are facing a genuine crisis in their own business.