Hi Sir
I'm Invested Smart Privilege in 2016 i paid 6 lakhs for 5 years now completed this month 9 years now value my Policy is 1.05 crs
Ans: I appreciate your clarity and proactiveness in seeking guidance. Let’s work step by step to ensure you make the most of your policy payout and build a stronger future.
Your Existing Policy and Current Value
You invested Rs.?6?lakhs over five years into an insurance?cum?investment policy ending this month. The policy’s current value is Rs.?1.05?crore. You held this plan for nine years. That shows patience and perseverance. Now your money is ready to be deployed into more productive avenues.
Critique of Insurance?cum?Investment Plans
Insurance?cum?investment plans combine life cover with an investment component. While these promise security, they come with high internal costs like entry load, fund management charges, and commission payouts. These charges reduce net returns, often making them underperform compared to clearer instruments like mutual funds.
These plans also tie you to long-term contracts and limit flexibility. You cannot choose customized asset allocation, nor rebalance based on needs. Investment returns stay average because charges eat into performance. There is no ongoing advisory guidance to adjust strategy as your life evolves.
As a result, such plans often serve insurance in disguise of investment, delivering modest growth and locking you in. On the other hand, direct equity or direct mutual fund plans require personal effort and may carry hidden pitfalls, especially without professional support.
Surrender vs. Continue Till Maturity
You stand at a pivotal decision point. One option is to continue the policy till maturity and receive the guaranteed payout. This gives you security but leaves your money tied up in a low-return product.
The other option is to surrender the policy now. Doing so will make your entire Rs.?1.05?crore available for reinvestment. With proper planning, this amount can be used more constructively—through diversified, actively managed mutual funds that adapt to market conditions and align with your goals.
Surrendering now gives you earlier access to your capital. With time on your side, redeployment into growth assets can compound significantly more over the years remaining to your goals. On the flip side, continuing till maturity avoids any surrender penalties, but leaves your money underutilized.
Clarifying Your Financial and Life Objectives
Before making deployment decisions, define your goals clearly:
Retirement security: At what age would you like financial independence? What is your desired corpus at that time?
Child’s future: If you have children, there may be education, wedding, or other needs. When and how much?
Lifestyle aspirations: Do you plan to buy a home? Start a business? Travel?
Each goal can be targeted with tailored investment buckets, so that you track progress separately. This avoids mixing corpus meant for different objectives.
Insurance Review: Are You Still Covered Adequately?
When you cancel your plan, review your insurance coverage:
Term insurance: Do you have enough life cover? Rule of thumb: 10–15 times your annual income, adjusted for current responsibilities.
Health insurance: This becomes critical as you age. Check if you have sufficient coverage, including for critical illnesses.
Avoid reinvesting in endowment or ULIP products: They blend insurance and investment loosely and do not offer much return. If existing, consult your CFP about surrendering and reallocating the value into more efficient mutual funds.
Insurance should protect, not lock up money.
Building a Smarter Investment Allocation
Once the Rs.?1.05?crore becomes available, allocate it across asset types:
Equity mutual funds (60%)
These funds invest in companies and give long-term growth. Use actively managed, regular mutual fund plans. They adapt to economic situations, while direct investment or index funds lack that flexibility. Your CFP and MFD will help select funds aligned to your risk appetite and goals.
Debt and fixed-income (30%)
Include products like PPF, NSC, corporate bond or low-duration debt funds. They balance equity’s volatility and provide stability.
Gold exposure (5%)
Maintain a small allocation to gold to absorb economic shocks. You may hold sovereign gold bonds or gold mutual funds rather than physical jewellery, to avoid purity and resale hassles.
Liquidity buffer (5%)
Keep a liquid fund or short-term deposit for emergencies or unforeseen needs.
Through regular investment and rebalancing, this allocation builds long-term wealth with risk control.
Equity Investment via Regular Plans
Why regular mutual fund plans guided by CFP and MFD are the preferred way:
Behavioural coaching: Emotions trigger poor decisions. Your CFP helps you stay calm during downturns.
Adaptive investments: Fund managers shift portfolio mix based on market cycles—something index funds cannot.
Customised selection: Your CFP picks funds based on your goals, risk appetite, and time horizon.
Periodic monitoring: You get regular reviews and can course-correct over time.
Direct funds leave ownership responsibility entirely on you. Mistakes in fund selection, timing, or non-rebalancing can hurt long-term returns. Regular plans with professional oversight mitigate these risks.
Taxation Awareness in Investments
Equity mutual fund gains:
Long-term capital gains (above ?1.25 lakh) taxed at 12.5%
Short-term capital gains taxed at 20%
Debt instruments:
Gains are taxed per your slab
Smart tax planning involves spreading fund sales over multiple financial years and ensuring proper documentation. Your CFP assists in timing and reporting to minimise your tax liability.
Liquidity & Short-Term Needs
Some of your corpus may be needed over the next year or two (e.g., for travel, medical emergencies, or house renovation). For such funds:
Use liquid mutual funds or ultra short-term debt funds
These offer stability and can be liquidated in 1–3 days
If you prefer FDs, choose small tenures and stagger them to match cash flow needs
Keep buffer aside (~5% of corpus) for peace of mind
Estate Planning and Wealth Transfer
A corpus of this size needs proper planning for family:
Create or update your Will, covering property, investments, insurance
Ensure nominations are updated across bank accounts, insurance, mutual funds
Inform your nominated family members or loved ones about account access
Store records securely (in safe deposit box or digital vault)
This ensures your wealth is transferred smoothly to your loved ones in future.
Implementation Plan (Quarter-by-Quarter)
Quarter 1
Finalise surrender decision or policy maturity timeline
Validate insurance adequacy, including term and health cover
Open accounts for fresh investments (bank, MFD, registrar)
Quarter 2
Redeploy capital into mutual fund and fixed-income portfolios
Set up SIPs for equity and debt instruments
Invest liquidity buffer in liquid funds or FDs
Quarter 3
Review progress and rebalance portfolios
Adjust fund selection, SIP amounts, or liquidity needs
Plan for any short-term expense (travel, home improvement)
Quarter 4 (Year-End)
Review yearly returns and tax implications
Adjust asset allocation based on performance and goal progress
Reassess your long-term goals and planning
After the first year, continue the cycle—this ensures your financial journey stays aligned with your evolving priorities.
Common Mistakes to Avoid
Even with a sound plan, avoid these pitfalls:
Reinvesting only in low-yield insurance products
Going into direct funds without guidance
Ignoring the importance of tax-efficient deployment
Forgetting liquidity for emergencies
Delaying or skipping insurance reviews
Not formalising estate planning and updates
A regular review process through your CFP keeps everything on track.
Final Insights
You’ve worked diligently to build a sizable corpus in a savings-led product. Now you deserve better returns and clarity. Releasing your capital sooner, with intent and planning, allows you to deploy money into instruments that grow in line with your ambition and risk profile.
By shifting to a diversified mix of actively managed equity and debt funds, you position yourself to enhance long-term growth while maintaining stability. With only 5% in gold and liquidity buffer, your portfolio remains robust yet flexible. Engaging a Certified Financial Planner for selection, review, and behavioural guidance ensures disciplined implementation.
As you move ahead, your investments will be purposeful and efficient, aligned with your goals, taxes, family protection, and legacy planning. Redeeming now is not just a financial step—it unlocks the potential to thread a more rewarding and secure financial path.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Question by Nasser on Feb 25, 2023Hindi
