Frozen funds and Hardship Withdrawals

If you are looking to save for the rainy day, one of the best ways to do it is with a frozen fund. This is a registered investment scheme that is operated by a responsible entity which is often called the fund manager. The fund manager suspends the right of the investors to withdraw or redeem their investment. The purpose of this is to protect the investments and the interest of the investors. By freezing the funds, the investment manager can ensure that the assets are not sold below market value each time a member investor asks to make a withdrawal. Thus, the capital and interests of everyone in the investment scheme are protected.

It must be noted that the responsible entity cannot freeze the funds without informing the members.

Withdrawing Frozen Funds

When a fund is frozen, most people usually assume that means no withdrawal at all. This is not entirely so as there are frozen funds that allows the member to withdraw generally with some conditions. To know whether you can withdraw or not, ask your responsible entity. Most times, withdrawal on funds is allowed when you’re having financial hardship. Below, we have provided a detailed explanation of how this work.

How to Withdraw On the Grounds of Financial Hardship

Where a frozen fund allows withdrawal based on hardship, the responsible entity must notify ASIC of this. Thus, an easy way to find if your scheme allows withdrawal on the basis of financial hardship is to check ASIC website where all responsible entities that have informed ASIC of their decision to allow hardship withdrawal are listed.

In order to withdraw your funds on these grounds, you must send a request to the responsible entity showing that you meet hardship criteria. All you have to do is meet one of the requirements below:

Unemployment: you must have been without employment for a minimum of three months and have no financial support outside of government assistance.

Urgent Financial Hardship: You must be unable to meet your immediate and reasonable living expenses or that of your dependants.

Permanent Incapacity: Where you can longer work due to physical or mental illness.

Compassionate Grounds: These are particular situations where you or your dependant need financial assistance. Such situations include:

  • Paying medical costs to treat a life-threatening injury or illness, alleviate chronic or severe pain, or a chronic or acute mental disturbance.
  • Paying for certain remodelling or modifications necessary to make a home or vehicle accommodating for needs arising out severe disability.
  • Assisting with funeral and death-related expenses due to your demise or that of a dependant.
  • Providing the care needed by someone suffering from a terminal illness.
  • Meeting specific financial obligations that are binding on you.
  • Preventing a lender from selling the home you live in.

Once you apply and meet a criterion, the responsible entity will determine how much each investor can withdraw. But it must not be more than $100,000 total in a year and a maximum of four withdrawals within the year.