I am 43 year I am having 2 Lic policy and 2 sips recently opened should I open terminsurance

Ans: Hi Kamal, it depends on the features that your LIC policy provides. Term insurance is a pure risk cover plan which protects your loved ones financially in case of a premature death.

Ans: Assessing Your LIC Policy
You have a LIC policy where you pay Rs. 2,220 monthly for 10 years. The policy matures in 15 years, with an expected maturity amount of Rs. 5 lakhs. Let's explore if it is wise to continue or discontinue this policy, considering your financial goals.

Evaluating the Policy’s Return
To begin, let's examine the return you are likely to get:

Premium Paid: Over 10 years, you will pay Rs. 2,220 monthly, totaling Rs. 2,66,400.
Maturity Amount: You will receive Rs. 5 lakhs after 15 years.
At first glance, it seems like you are getting back more than you paid. However, when you account for inflation and other factors, the return is modest.

Considering the Inflation Impact
Inflation reduces the purchasing power of your money over time. The Rs. 5 lakhs you expect to receive after 15 years will not have the same value as it does today.

Key Points to Note:

Inflation can erode the real value of your maturity amount.
The return you get may not match your financial needs in 15 years.
Analyzing Alternative Investment Options
There are other investment avenues that might offer better returns with the same or even lower risk. These include mutual funds, especially actively managed ones, where a Certified Financial Planner can help you pick funds that align with your risk profile and goals.

Advantages of Actively Managed Funds:

Potential for higher returns compared to traditional insurance policies.
Professional management and regular adjustments to maximize gains.
Assessing the Disadvantages of Continuing with the Policy
By continuing with the policy, you might miss out on higher returns offered by alternative investments.

Points to Consider:

Traditional insurance policies often provide lower returns.
Opportunity cost of not investing in higher-return options like mutual funds.
Should You Discontinue the Policy?
If your primary goal is wealth creation, this policy might not be the best option. Discontinuing and reallocating your funds could be a better strategy.

What You Should Do:

Consult with a Certified Financial Planner: They can guide you on the best mutual funds to switch to.
Consider Surrendering the Policy: If it aligns with your financial goals, you could surrender the policy and reinvest the proceeds in a better-performing investment.
Assessing the Insurance Aspect
It’s important to consider that this policy may also provide life coverage. However, the coverage offered by such policies is often inadequate compared to term insurance plans.

Key Insights:

Term insurance offers higher coverage at a lower premium.
You could get better protection by opting for a term insurance plan and investing the remaining funds elsewhere.
Understanding the Cost of Surrendering the Policy
If you decide to discontinue the policy, you might incur some costs. It's important to weigh these costs against the benefits of reinvesting your funds.

Key Considerations:

Check the surrender value and any penalties involved.
Calculate the potential gains from alternative investments after accounting for these costs.
Exploring a Balanced Approach
If you're unsure whether to continue or discontinue, a balanced approach could involve maintaining the policy while diversifying your investments.

Points to Think About:

Continue with the policy for its insurance cover while also starting a mutual fund SIP.
Reassess your investment strategy periodically with the help of a Certified Financial Planner.
Final Insights
Continuing with your LIC policy might not be the best decision if wealth creation is your main goal. There are other investment avenues like mutual funds that offer potentially higher returns. You might consider surrendering the policy and reinvesting the funds into mutual funds while ensuring you have adequate life insurance coverage through a term plan.

Steps You Should Take:

Review your financial goals with a Certified Financial Planner.
Consider the benefits of alternative investments like mutual funds.
Ensure you have sufficient life coverage through term insurance.
This way, you can make informed decisions that align with your long-term financial objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hello;

What is your current age, sum assured, policy term and premium paying term for jeevan lakshya policy?

Based on your input we can recommend you suitably.

Best wishes;

Ans: Understanding Your Current LIC Policies

You have been paying Rs. 4,200 per month for 4 LIC policies.

These are investment-cum-insurance policies.

Most such policies offer low returns of 4% to 5% p.a.

They also come with long lock-in periods and low transparency.

Insurance is often bundled with investment in such plans.

This combination does not work well for long-term wealth creation.

Since you've been paying for 7 years, policy surrender may be viable now.

You must check surrender value for each policy before taking a step.

Ask your LIC agent or visit the branch to get this surrender value.

If the value is acceptable, you can consider surrendering and reinvesting.

Ensure no policy is term insurance. Only surrender investment-linked ones.

Do not discontinue policies that are pure term insurance.

Why Investment-Cum-Insurance Is Not Efficient

Returns are often lower than inflation-adjusted growth.

You remain underinsured in most such policies.

You get neither enough insurance nor enough return.

You lose out on compounding benefits of equity investments.

Lock-ins make liquidity difficult when you need funds.

Bonus and loyalty additions are neither guaranteed nor high.

What You Can Do Instead

Separate insurance and investments.

Take a term insurance plan of adequate cover.

For investment, consider equity mutual funds for long-term growth.

You can start with Rs. 4,200 per month as SIP.

This disciplined habit can create a large corpus in long run.

Over time, increase SIP amount as income increases.

Why Mutual Funds Are Better Option for Growth

Mutual funds offer better long-term returns than LIC plans.

You can start with small amounts like Rs. 500 or Rs. 1,000 per scheme.

You get professional fund management for your investment.

Funds are regulated, diversified and transparent.

You can invest through MFDs who are trained and certified.

Look for MFDs who also hold CFP credentials.

They offer ongoing guidance, reviews, and rebalancing.

Why You Must Choose Regular Plans Over Direct Plans

Direct plans lack personal advisory support.

No one helps you review your funds periodically.

Mistakes go unnoticed for long periods.

Switching or stopping is often delayed due to inaction.

Regular plans through CFP/MFDs provide handholding.

You gain behavioural coaching during market ups and downs.

They align investments with your goals.

Direct plans may seem cheaper but costlier in long run due to poor choices.

Avoid being penny-wise and rupee-foolish.

Why Actively Managed Funds Are Better Than Index Funds

Index funds mirror the market; they don’t beat it.

No chance of alpha or extra returns in index funds.

In falling markets, index funds fall as much as the market.

No downside protection in index investing.

Index funds may have low cost, but cost alone doesn’t build wealth.

Actively managed funds use research to select better performing stocks.

They can underweight poor sectors and overweight better ones.

This gives you better returns over long periods.

A competent fund manager backed by a research team adds value.

Choose active funds through a CFP-guided MFD.

Taxation of Mutual Funds

Mutual funds now have updated tax rules from FY 2024-25.

For equity funds:

LTCG above Rs. 1.25 lakhs taxed at 12.5%.

STCG taxed at 20%.

For debt funds:

Both STCG and LTCG taxed as per your slab.

Capital gains taxed only on redemption, not during investment.

SIPs give you tax efficiency with compounding.

Things to Consider Before Surrendering LIC Policies

Check surrender value and whether loan has been taken on policies.

Ensure no loan is pending before surrender.

Ask for written calculation of surrender benefits.

Be prepared for possible surrender charges.

Some policies give loyalty additions only after 10 years or more.

Evaluate whether waiting longer gives more benefit or not.

Consult with a CFP-backed MFD before taking final call.

Review policies one-by-one, not all together.

Create an action plan with dates and steps.

Ideal Way to Build Wealth with Mutual Funds

Invest based on your goals: retirement, child education, etc.

Have a mix of large-cap, mid-cap, and hybrid funds.

Start with goal mapping with a certified financial planner.

Align SIPs with time horizon and risk capacity.

Avoid investing based on past returns alone.

Rebalance portfolio every year to control risk.

Keep SIP going even in market corrections.

That is when wealth-building actually happens.

Insurance Planning Separately

You should not ignore risk management while investing.

Check your life insurance needs first.

Take a term plan based on your income and responsibilities.

Ensure your family is financially protected in your absence.

Keep this insurance separate from your mutual funds.

Don’t bundle investment with insurance again.

Liquidity and Emergency Planning

LIC policies are illiquid. They lock your funds for decades.

Mutual funds give better liquidity.

You can pause or stop SIPs in emergencies.

You can redeem units partly as needed.

Maintain an emergency fund for 6 months of expenses.

Keep this in a liquid mutual fund or savings account.

Avoid using SIP money for short-term needs.

Role of MFDs with CFP Credential

They understand goal-based planning.

They help you map your life goals and match investments.

They handhold during market volatility and tough times.

You get unbiased advice with financial discipline.

Regular reviews help stay on track.

They protect you from emotional decisions and wrong choices.

Behavioural Advantages of Guided Investing

People often stop SIPs in market corrections.

Guided investing avoids panic-based decisions.

A disciplined investor stays for long term and wins.

Emotion is the biggest enemy of returns.

Certified financial planners help maintain focus and consistency.

Action Plan for You

Step 1: Identify which LIC policies are investment-linked.

Step 2: Get their surrender value in writing.

Step 3: Review with a CFP-backed mutual fund distributor.

Step 4: Surrender one policy at a time, if needed.

Step 5: Start SIPs in selected mutual fund schemes.

Step 6: Invest Rs. 4,200 per month for now.

Step 7: Increase SIP amount gradually every year.

Step 8: Track and review once a year with expert help.

Financial Goals You Can Plan With SIP

Retirement corpus for comfortable future.

Children’s higher education or marriage.

Building down payment for a future home.

Creating a travel or lifestyle fund.

Becoming financially independent earlier.

Mistakes to Avoid

Surrendering without understanding surrender value loss.

Repeating the same mistake of investment-cum-insurance.

Investing in direct plans without guidance.

Chasing past returns while selecting funds.

Having too many funds without purpose.

Avoiding equity due to fear of volatility.

Finally

You have taken a smart decision by evaluating your LIC policies.

Rs. 4,200 per month, when invested wisely, can grow significantly.

Mutual funds offer flexibility, growth, and diversification.

Invest through a certified financial planner with MFD license.

Avoid investing directly without guidance.

Keep your insurance and investments separate.

Reassess your financial goals and create a roadmap.

Follow that roadmap with discipline and guidance.

Wealth creation is a journey. It needs right tools and guidance.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Hi,

Choosing SIP is always the best option. LIC has certain points:
- LIC comes with a lock-in.
- LIC gives 4% annual return when calculated. It is even less than FD.

If you think SIP is risky, go for simple FD but do not choose FD.

And if you want to start investing via SIPs, get in touch with a professional Certified Financial Planner - a CFP who can guide you with exact funds to invest in keeping in mind your age, requirements, financial goals and risk profile. A CFP periodically reviews your portfolio and suggest any amendments to be made, if required.

Let me know if you need more help.

Best Regards,
Reetika Sharma, Certified Financial Planner
https://www.instagram.com/cfpreetika/