2. I want your advice on HDFC Life Sanchay Plus Pension Plan for long term or life-long guaranteed income. It is claimed that total premium paid will be returned after the payout period and income earned will be tax free. shall i buy this policy? will it be feasible? shall i use funds from my mutual funds?

Ans: It's wonderful that you’re thinking about your future and planning for early retirement. At 35, you’ve got a strong foundation, but there are some areas where you can refine your strategy to meet your goal of accumulating Rs 2 crore by the age of 45.

Let's break this down step by step, considering all aspects of your current financial situation.

Current Investments and Their Assessment

You have several ongoing investments which are commendable. Here's a detailed look at each one and some suggestions:

1. EPF and VPF

You’re contributing Rs 28,410 per month to your EPF and VPF. This is a solid investment, providing you with a stable, long-term return and tax benefits. Keep this going as it forms a good base for your retirement corpus.

2. PPF

Your PPF account, with an accumulated amount of Rs 7,20,000 and an annual investment of Rs 1,50,000, is a secure investment offering decent returns. It’s also tax-free, which is a great advantage. Continue with your current strategy until maturity in 2031.

3. NPS

The National Pension System is another excellent investment for retirement. You are investing Rs 6,000 in Tier 1 and Rs 1,000 in Tier 2 monthly. Considering the long-term nature and tax benefits of NPS, this is a good choice. You might consider increasing your contributions here over time to boost your retirement corpus.

4. ULIP Plan

Your HDFC Life Insurance ULIP with an annual premium of Rs 2,15,000 is a significant investment. ULIPs generally have higher charges and might not be the most efficient way to invest for growth. It’s advisable to evaluate this policy. If the returns are not meeting your expectations, consider surrendering it and reinvesting in more efficient investment avenues such as mutual funds.

5. Health Insurance

You have a Rs 5,00,000 health insurance cover from your company, which is good. However, it’s prudent to have a personal health insurance policy independent of your employer, ensuring continuous coverage regardless of job changes.

Evaluating Investment Options

Let’s discuss potential improvements and additional investment avenues to meet your Rs 2 crore target by 45.

1. Equity Mutual Funds

Actively managed equity mutual funds are excellent for long-term growth. They have the potential to offer higher returns compared to other investment options. Unlike index funds, actively managed funds benefit from professional management, aiming to outperform market indices.

Consider systematic investment plans (SIPs) in well-performing mutual funds. This can help you leverage the power of compounding and market volatility.

2. Increasing NPS Contributions

Given the tax benefits and long-term growth potential, consider gradually increasing your NPS contributions. This will enhance your retirement corpus significantly.

3. Regular Mutual Funds through a Certified Financial Planner

Investing in regular mutual funds through a certified financial planner (CFP) has distinct advantages. CFPs provide tailored advice, help with fund selection, and offer ongoing support to optimize your investment strategy. Regular mutual funds come with an advisor fee, but the professional guidance often results in better returns and less hassle.

4. Emergency Fund

It’s crucial to have an emergency fund equivalent to 6-12 months of your monthly expenses. This ensures you have liquidity for unforeseen expenses without disrupting your long-term investments.

5. Additional Health Insurance

Securing a personal health insurance policy with adequate coverage is essential. This ensures continuous protection regardless of changes in employment.

Detailed Action Plan

1. Review and Optimize Current Investments

Assess your ULIP’s performance. If returns are unsatisfactory, consider surrendering and reinvesting in mutual funds.
Maintain your EPF and PPF contributions as they are beneficial long-term investments.
2. Enhance Equity Exposure

Start SIPs in actively managed equity mutual funds. Aim to allocate a significant portion of your savings here for better growth potential.
Increase your NPS contributions progressively. Focus more on the Tier 1 account due to its tax benefits and long-term growth.
3. Financial Safety Net

Create an emergency fund covering 6-12 months of expenses. This provides financial security against unexpected events.
Secure a personal health insurance policy to supplement your company-provided coverage. Ensure it covers a wide range of medical conditions and treatments.
4. Monitoring and Adjustments

Regularly review your investment portfolio. Ensure it aligns with your retirement goals and risk appetite.
Consult with a certified financial planner regularly. They can provide personalized advice, helping you navigate market changes and optimize your investments.
Disadvantages of Direct Funds

Direct funds might seem attractive due to lower expense ratios, but they require active management and financial expertise. Without professional guidance, you might miss out on optimal fund selection and portfolio adjustments.

Benefits of Regular Funds through CFP

Expert Guidance: CFPs offer expert advice tailored to your financial goals and risk tolerance.
Ongoing Support: They provide continuous monitoring and adjustments, ensuring your investments stay on track.
Better Returns: Professional management often leads to better returns compared to self-managed direct funds.
Final Insights

Reaching your goal of Rs 2 crore by 45 is achievable with disciplined savings and strategic investments. Focus on high-growth avenues like actively managed equity mutual funds, increase your NPS contributions, and ensure you have a robust financial safety net.

Regularly consult with a certified financial planner to optimize your investments and stay aligned with your goals. Their expertise will help you navigate financial complexities and enhance your portfolio’s performance.

Stay disciplined and proactive in your financial planning. With the right strategy, you’ll achieve your early retirement goal and secure a comfortable future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Current Investment Overview
Investment Vehicle: HDFC Sanchay Retirement Combo Plan
Annual Investment: Rs 2 lakhs (Rs 1 lakh in a capital guaranteed plan and Rs 1 lakh in a market-linked plan)
Capital Guaranteed Plan: Promised Rs 20 lakhs in 2042
Market-Linked Plan: Promised Rs 1 lakh per month after 18 years
Age: 28 years
Retirement Goal: Retire by 45 years
Analysis of the HDFC Sanchay Retirement Combo Plan
Capital Guaranteed Plan
Promise: Rs 20 lakhs in 2042

Duration: 18 years

Annual Contribution: Rs 1 lakh

Evaluation:

Return Rate: Calculate the compound annual growth rate (CAGR) to evaluate returns.
Inflation: Rs 20 lakhs in 2042 may have lower purchasing power due to inflation.
Flexibility: Check the plan’s liquidity and penalties for early withdrawal.
Market-Linked Plan
Promise: Rs 1 lakh per month after 18 years

Duration: 18 years

Annual Contribution: Rs 1 lakh

Evaluation:

Performance: Market-linked plans depend on the performance of the underlying assets.
Risk: Higher risk compared to guaranteed plans.
Transparency: Understand the underlying investments and associated fees.
Concerns and Considerations
Capital Guaranteed Plan
Low Returns: Such plans often offer lower returns compared to mutual funds or other investment vehicles.
Inflation Impact: Fixed returns may not keep pace with inflation, reducing real value.
Lock-In Period: Long lock-in period may restrict financial flexibility.
Market-Linked Plan
Uncertain Returns: Returns are not guaranteed and depend on market performance.
Promises: Be cautious of promises of high returns. Verify with documented terms and conditions.
High Fees: Market-linked plans can have higher management fees and charges.
Better Alternatives
Diversified Mutual Funds
Equity Mutual Funds: Higher potential returns with long-term growth prospects.
Debt Mutual Funds: Stable returns with lower risk, ideal for capital preservation.
Balanced Funds: Combination of equity and debt for balanced growth and stability.
Systematic Investment Plan (SIP)
Monthly Investments: Invest smaller amounts monthly for rupee cost averaging.
Flexibility: Easily adjustable contributions based on financial situation.
Public Provident Fund (PPF)
Tax Benefits: Tax-free returns and principal under Section 80C.
Safety: Government-backed and secure.
Advantages of Actively Managed Funds
Professional Management: Expert fund managers aim for higher returns.
Dynamic Allocation: Adjusts to market conditions for optimal performance.
Diversification: Spreads risk across various sectors and assets.
Final Insights
Reevaluate Current Plan: The HDFC Sanchay Retirement Combo Plan may not be the best fit given the low returns and long lock-in period.
Explore Alternatives: Consider diversified mutual funds, SIPs, and PPF for better returns and flexibility.
Consult a CFP: A Certified Financial Planner can provide tailored advice and help optimize your investment strategy.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Most of the people make this mistake of considering insurance coupled with investment as good combination. The fact that insurance regulator allows insurance companies to use words such as "Guaranteed", "Assured" which entice gullible investors, makes things more difficult.

Endowment or money back policies never yield return over 5 to 6%.

Even ULIP policy returns above a threshold will now be subject to long term capital gain tax apart from fund management, policy administration and other heavy charges during first 5 years.

Insurance is for pure protection hence term insurance with appropriate riders is best option.

Unfortunately there is no way you can seek higher surrender value payment because you are contractually obligated by the terms and conditions of the policy agreement.

Ans: You and your wife currently hold Rs 1 crore in mutual funds. It’s wise to have this corpus growing for retirement and to consider a Systematic Withdrawal Plan (SWP) after reaching 65.

An SWP from mutual funds can give flexibility, especially if spread across diversified funds. You’ll be able to generate steady income while keeping funds in growth-oriented investments, which could continue compounding.

LIC Policies Evaluation

You have various LIC policies, including Term, Endowment, Jeevan Saral, and Jeevan Anand. Traditional policies like these often carry lower returns, as they focus on insurance rather than investment growth.

Term plans are valuable, as they provide substantial coverage at lower costs. But investment-oriented policies like Endowment and Jeevan plans generally yield low returns, around 4-6%, which may not be ideal for retirement planning.

If these plans have served their purpose for insurance cover, consider surrendering or partially withdrawing them, reinvesting in growth-oriented assets, such as mutual funds, for better wealth accumulation.

Evaluation of HDFC Life Guarantee Wealth Plus Plan
HDFC Life Guarantee Wealth Plus is a structured ULIP plan offering guaranteed income after the premium payment period. However, ULIPs often have high fees and limited growth compared to mutual funds. Also, locking Rs 5 lakh annually for 12 years might affect cash flow flexibility.

Drawbacks of ULIP-Based Plans

High Charges: Premium allocation, policy administration, and fund management fees reduce the net return.

Limited Growth Potential: ULIPs, due to costs, generally underperform compared to mutual funds in terms of returns.

Liquidity Constraints: Premiums are locked for the initial 5 years, limiting early access.

Suggested Approach to Retirement Income Planning
1. Systematic Withdrawal Plan (SWP) for Mutual Funds

A well-planned SWP from a diversified mutual fund corpus provides stable monthly or annual income while allowing capital appreciation.

Mutual funds, particularly those actively managed by professional fund managers, have the potential for inflation-adjusted returns.

2. Investment in Balanced Mutual Funds or Monthly Income Plans (MIPs)

Balanced or hybrid mutual funds can provide regular income and are managed to achieve balanced growth, considering both equity and debt.

MIPs, with a focus on debt and a small equity component, provide monthly or quarterly income options and have tax benefits under the new capital gains tax structure:

For equity, Long Term Capital Gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%.
Short Term Capital Gains (STCG) on debt are taxed as per your income tax slab, while LTCG are also taxed as per your slab.
Ensuring Flexibility and Growth
Avoid ULIP for Retirement

As a retirement plan, ULIPs offer limited flexibility in withdrawals and returns, especially when compared with mutual funds. Since liquidity and growth are vital for retirement, consider avoiding ULIPs like HDFC Life Guarantee Wealth Plus.
Maintain a Balanced Investment Strategy

With a balanced approach across mutual funds and PPF, you can achieve income stability, growth, and low-risk liquidity.
Final Insights
Reviewing your LIC policies for potential reinvestment can yield better retirement outcomes.

Consider structured withdrawals from mutual funds or monthly income plans for sustainable retirement income.

ULIPs may not be the best retirement income option due to high costs and inflexibility.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment