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Ramalingam

Ramalingam Kalirajan  |8111 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 16, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
NIRAJ Question by NIRAJ on May 09, 2024Hindi
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I am 49 yrs with monthly expense of 2 Lakhs and corpus of 7 CR so can i retire now with life expectancy of 75 yrs

Ans: Retirement Feasibility Analysis: Exploring Your Retirement Options
At 49 years old, contemplating retirement with a monthly expense of ?2 lakhs and a corpus of ?7 crores is a significant decision. Let's delve into whether you can comfortably retire now, considering a life expectancy of 75 years.

Evaluating Financial Stability
With annual expenses totaling ?24 lakhs, we must ascertain if your corpus can sustain your lifestyle throughout retirement. Calculating your withdrawal rate from the corpus is crucial.

Withdrawal Rate Assessment
Dividing annual expenses by retirement corpus:

?24 lakhs / ?7 crores = 0.342.......

Your withdrawal rate is approximately 3.43%.

Sustainable Withdrawal Rate
A withdrawal rate around 4% is often deemed safe for retirement planning. Your rate of 3.43% suggests that your corpus may adequately support your expenses in retirement.

Longevity Considerations
Given your life expectancy of 75 years, it's prudent to acknowledge the possibility of living longer. Advancements in healthcare indicate the need for financial preparedness beyond this age.

Risk Management Strategies
To address longevity risk and safeguard financial security:

Regularly reassess expenses and adjust withdrawal rates to accommodate inflation and lifestyle changes.
Diversify investments across asset classes to optimize returns and mitigate risk.
Periodically review retirement plans with a Certified Financial Planner to ensure alignment with goals.
Conclusion
Your financial situation suggests that retiring now could be feasible, given your corpus and expenses. However, it's imperative to remain vigilant regarding longevity risk and inflation to ensure sustained financial well-being throughout retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |8111 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Nov 02, 2024

Asked by Anonymous - Nov 01, 2024Hindi
Money
I am 51 yrs old with 6Cr in equities, 70 lakhs in cash n FDs. I have 2 houses (worth 1.5Cr in total) both self occupied as of now, with no debt. I have subcribed for Medical & Life insurance for a decent amount. My dependents are my wife 45 yrs and child of 14 yrs with 5 to 7 yrs of education left (either graduation or PG respectively). My monthly expenses are 15L to 18L currently. My equity portfolio is anticipated to grow at atleast 8+% pa. I am on sabatical for past 2 yrs with no pay due to some personal emergencies. Please let me know, if I can retire now, if i assume a life expectancy of say 85 yrs.
Ans: At 51, with an asset-rich profile, this is an excellent time to assess if you can retire comfortably. We’ll cover key areas to evaluate financial readiness for retirement based on your goals and resources.

Current Financial Standing and Expenses
Your financial profile reflects strong assets with Rs 6 crore in equities, Rs 70 lakh in cash and FDs, and two self-occupied properties worth Rs 1.5 crore. You also have medical and life insurance, which is crucial for family security.

Your monthly expenses are between Rs 15 lakh and Rs 18 lakh. Given this, retirement planning will focus on cash flow, inflation management, and legacy planning.

Income Needs and Investment Review
With no current income, a stable cash flow is essential. Let’s assess how your assets can serve as reliable income sources while providing growth to combat inflation.

Equity Portfolio (Rs 6 Crore): Assuming your portfolio grows at 8% annually, it’s important to manage risk by diversifying. Actively managed funds offer adaptability and the potential for higher returns over index funds, which lack downside protection. This will help maintain steady growth while protecting your capital.

Cash and FDs (Rs 70 Lakh): Cash and FDs offer liquidity but have low returns. At current inflation, they won’t retain much value long-term. Using these for short-term needs or emergencies is wise, but a better strategy is to structure withdrawals to avoid depleting reserves quickly.

Evaluating Monthly Cash Flow and Expense Coverage
Here’s a sustainable income plan to cover monthly expenses while growing your investments.

Systematic Withdrawal Plan (SWP): Set up an SWP from your mutual funds. This method allows regular withdrawals without depleting principal, offering flexibility for adjustments if your expenses change. A Certified Financial Planner can help you structure this for tax efficiency, as SWP gains above Rs 1.25 lakh incur 12.5% LTCG tax.

Debt Allocation for Stability: Consider adding high-quality debt funds, which provide moderate returns with stability. Avoid annuities, as they restrict flexibility and offer low returns. Debt funds allow you to adjust based on market conditions and withdraw as needed.

Dividend-Based Funds: Some mutual funds provide dividends. These funds provide periodic payouts, which you can use for monthly expenses. While not guaranteed, these funds complement other income sources.

Periodic Review of Cash Flow: Review your spending every 6 months. Adjust withdrawals based on market growth and expense needs to ensure your funds last through retirement.

Building an Inflation-Protected Investment Strategy
Rising expenses require a strategy to grow your portfolio beyond inflation. Equity and hybrid mutual funds provide growth, while debt funds add stability.

Balanced/Hybrid Mutual Funds: These funds combine equity for growth and debt for safety, fitting well for moderate-risk investors. They allow you to benefit from market growth with less volatility.

Flexible Asset Allocation: Actively managed funds let professional managers shift assets based on market conditions. This agility benefits portfolios more than index funds, which lack flexibility and could expose you to higher risks during market downturns.

Regular Monitoring of Portfolio: Annual reviews of asset allocation with a Certified Financial Planner will help you keep a balanced risk profile. Ensure your equity allocation is rebalanced as you age, protecting against market volatility.

Education Planning for Your Child’s Future
Your child’s education expenses will span the next 5–7 years, with possible costs for post-graduation as well.

Dedicated Education Fund: Start a dedicated fund for education. Allocate it toward balanced or equity mutual funds, which provide stability with potential for appreciation. Over the next few years, these funds can build enough to cover college or post-graduation costs.

Insurance as a Backup: Continue with your life and medical insurance to secure your family’s future, covering education costs if needed. A term insurance policy will ensure financial stability for your child’s education even in unforeseen circumstances.

Preparing for Health and Emergency Expenses
Health expenses can be unpredictable. With medical coverage in place, ensure that your assets are accessible when required.

Super Top-Up Health Insurance: If you anticipate higher medical costs, consider a super top-up plan to increase coverage without a significant premium hike.

Emergency Fund Allocation: Maintain a separate emergency fund in cash or a liquid fund. This fund should cover 6–12 months of expenses, providing quick access if your primary funds are temporarily inaccessible.

Tax-Efficient Withdrawals to Optimise Retirement Income
As you withdraw funds, a tax-efficient strategy will maximise your net income.

Staggered Withdrawals for Tax Minimisation: Avoid withdrawing large sums at once, as this could push you into a higher tax bracket. Systematic withdrawals over time are more tax-efficient.

Understand Mutual Fund Taxation: The new rules set LTCG tax at 12.5% for gains above Rs 1.25 lakh on equity funds, while STCG is taxed at 20%. Debt funds are taxed as per your income slab. Plan your withdrawals accordingly to optimise tax outcomes.

Indexation Benefit on Debt Funds: When selling debt funds, use indexation benefits to reduce tax liability. This will preserve your income and principal, ensuring you meet expenses effectively.

Final Insights
Your assets provide a solid foundation for retirement. By structuring withdrawals, diversifying investments, and planning tax-efficient strategies, you can secure a comfortable and inflation-protected retirement. Regular portfolio reviews and disciplined spending will be key in maintaining your lifestyle across the years.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,

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

..Read more

Ramalingam

Ramalingam Kalirajan  |8111 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 20, 2025

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I am 52 yrs with monthly expense of 3k p.m. and corpus of 30 lakhs ( no investments) and monthly pension will start from 55k, one son aged 26 years working in private for 8.00 lakh p.a. and one son aged 23 year studying PG, own house and one plot . so can i retire now with life expectancy of 75 yrs
Ans: You have a monthly expense of Rs. 30,000 and a corpus of Rs. 30 lakhs.

Your pension of Rs. 55,000 per month will start soon.

With proper financial planning, retirement now is achievable.

Understanding Your Financial Position
Corpus: Rs. 30 lakhs is a good start.

Pension Income: Rs. 55,000 per month will cover regular expenses.

Own House: Eliminates rent or housing costs.

Plot: Acts as a backup asset if needed.

Future Expense Management
Monthly Expenses
Your pension income will comfortably cover your current expense of Rs. 30,000.

You can allocate the surplus for contingencies or lifestyle upgrades.

Children’s Support
Your elder son is financially stable and earning Rs. 8 lakh per annum.

Your younger son is pursuing post-graduation, which may involve educational expenses.

Inflation Adjustment
Factor in inflation for your living expenses over the next 23 years.

Create a contingency reserve to handle any unexpected needs.

Creating a Retirement Corpus Strategy
Emergency Fund
Keep Rs. 5 lakhs aside in a liquid fund for emergencies.

Ensure it is easily accessible without penalties.

Investment Strategy
Allocate Rs. 15 lakhs to balanced mutual funds for moderate growth and stability.

Keep Rs. 10 lakhs in fixed-income options like Senior Citizens Savings Scheme (SCSS).

Contingency Planning
Use your plot as a last resort to handle large, unexpected expenses.

Avoid selling unless absolutely necessary.

Insurance Needs
Health Insurance
Ensure you have comprehensive health insurance for yourself and family.

Check the coverage amount and renew policies on time.

Life Insurance
Life insurance may not be essential since your sons are independent.

If you have existing policies, review their relevance and surrender if costly.

Finalising Retirement Plans
Pension Management
Start using your pension income to meet monthly expenses.

Save any surplus pension for travel or future goals.

Support from Sons
Your elder son can contribute if needed for family or educational expenses.

Discuss responsibilities openly to ensure clarity.

Final Insights
You can retire now with prudent financial planning.

Prioritise expense management and investment allocation.

Keep a contingency plan for unexpected situations.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

..Read more

Ramalingam

Ramalingam Kalirajan  |8111 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Feb 04, 2025

Asked by Anonymous - Jan 27, 2025Hindi
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Iam 55 yrs old. I have a corpus of 2cr in equity and mutual fund, 3cr investment in various schemes, own house worth 2.5cr, land worth 50 l, savings about 50 l. Daughter studying abroad almost finishing her study and son studying engineering. Kindly advise if I can retire.
Ans: Your current investment portfolio appears well-diversified. With Rs. 2 crore in equity and mutual funds and Rs. 3 crore in various schemes, you have built a robust base. Additionally, owning a debt-free house worth Rs. 2.5 crore strengthens your financial position. The savings of Rs. 50 lakh offer flexibility for short-term needs.

Supporting your children's education abroad and for engineering studies indicates a thoughtful financial plan. Since your daughter's education is nearing completion, future expenses will likely reduce, freeing up resources.

Retirement Feasibility
Based on your corpus and lifestyle goals, retiring now may be feasible. However, there are a few essential considerations before making the final decision:

Monthly Expenses: Calculate your expected post-retirement monthly expenses, including healthcare and leisure.

Inflation Factor: Your corpus should provide increasing income to combat inflation. A long retirement horizon requires capital preservation alongside regular withdrawals.

Children's Future Expenses: Ensure funds are allocated for your son's remaining education and any assistance for your daughter.

Recommendations
Systematic Withdrawal Plans (SWPs): Allocate part of your mutual fund corpus to SWPs for regular income. This ensures tax-efficient, predictable cash flow post-retirement.

Actively Managed Mutual Funds: Keep a portion of your equity corpus in actively managed funds to benefit from growth opportunities. These funds often outperform passive alternatives like index funds over the long term.

Debt Fund Allocation: Increase exposure to high-quality debt funds. These provide stability and predictable returns, balancing market volatility risks.

Emergency Fund: Maintain Rs. 25-30 lakh as a liquid emergency fund. This safeguards against unforeseen medical expenses or other emergencies.

Insurance and Health Protection
Health Insurance: Opt for comprehensive health insurance, especially for senior citizens, with adequate coverage. Your current financial health may cover premiums.

Life Insurance: Evaluate whether current policies serve any practical purpose now. At this stage, investment-focused insurance like ULIPs or LIC plans are likely inefficient.

Estate Planning
Will Preparation: Draft a clear will to distribute your wealth as per your wishes. This prevents future disputes and ensures smooth inheritance.

Power of Attorney: Consider assigning a trusted family member or advisor as a financial power of attorney.

Education Fund Planning
Allocate a specific portion of your savings to fully cover your son’s education costs.
Any surplus from this earmarked amount can be redirected to investments.
Asset Utilisation Insights
House and Land Ownership: Continue holding these assets if they provide emotional security.

If needed, these can later be liquidated for further income during retirement.

Diversify Savings: Rs. 50 lakh in savings can be strategically split among fixed deposits, debt funds, and liquid mutual funds for steady and safe returns.

Final Insights
With a corpus of Rs. 5 crore and prudent asset allocation, retiring at 55 seems achievable. Focus on maintaining an optimal balance between equity and debt investments to ensure steady growth and income.

By making thoughtful decisions about withdrawals, insurance, and estate planning, you can enjoy a financially secure and fulfilling retirement.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

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

..Read more

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Ravi

Ravi Mittal  |550 Answers  |Ask -

Dating, Relationships Expert - Answered on Mar 19, 2025

Asked by Anonymous - Feb 02, 2025Hindi
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Hello sir/ma'am...i am a girl of 21 yrs and my bf 24yrs.We met each other through an online friendly chat app.Since 1yr,we r chatting,video and voice calls.He told me,he loves me and wanna marry me.I too liked him and I took the matter to my parents and they agreed for our marriage also.I made him talk to my parents.He didn't still let this matter know to his parents.Recently,without my permission..my cousin sis took his insta id and chatted with him like an unknown girl for fun.She created an account in insta and sent a request to him n he accepted that request and continued chatting with her.She told him like she saw his profile and interested and so given a request.He was asking her for voice call,video call,but she didn't accept.She sent some other picture when he insisted her pic and later he asked her "do u like me" for which she funnily replied love at first sight and love you.He told her he want to express his love to her in voice call and later he too proposed..she showed all those screen shots to me. I am broken.I questioned him what is all this?...for which he replied...he just chatted to find out whether that account was a fake account or real account...but,the screen shots were showing something different..when my cousin called him bro..he was very upset and scolded her too. Now,he saying he thought it's a fake boy id and wanted to make fun of and even fought with me saying i don't trust him and without his acceptance..i gave his id to my cousin..but,i havent given.. He is saying he wanted to test whether it is a fake or a real account and so he made fun off and didn't mean it and that too just chatting it is n not to take it seriously and he loves me much.. I am confused after this whether to proceed for marriage..he isthe first guy and love in my life...should i believe him or let him go or should i give him one more chance?..please give u r advice..thank you
Ans: Dear Anonymous,
I am so sorry that you are in this situation. While I can't make a decision for you, I can help you by pointing out how this looks like from an outsider's perspective- your BF's interactions with this profile do not really support his claim of "just testing if it's a fake account." It seems like he was interested in chatting and continuing the flirty conversations. This does not mean he is in love with the person behind that online profile, but it surely looks like he can go behind your back for some thrill.

Trust and honesty are two very important things in a relationship, and if you are planning on getting married, this is not a good start. Moreover, his getting angry at you upon confrontation is a red flag- he tried to gaslight you.
It's your choice whether you want to leave or give him another chance but before you make a decision in haste, ask yourself-
1) If he loves you, would he flirt with someone or even chat with a stranger for entertainment?
2) Would you do the same to him?
3) Is he taking responsibility and asking for forgiveness?
4) Can you trust him completely after this or would you always keep wondering if he is cheating on you?
Once you answer these honestly, I think you will know what's the right thing to do.

Hope this helps.

...Read more

Ramalingam

Ramalingam Kalirajan  |8111 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Mar 19, 2025

Asked by Anonymous - Mar 17, 2025Hindi
Money
I am 39 years old and my wife is 38 working and my son is 7 years. I earn 35LPA my wife 15LPA. I started with zero as from a young age I took care of my parents by paying tuition and funded by my education. I completed engineering and started paying off my education loan from my first day of work. 2015 I got married and in 2016 we bought our first house. I moved my parents there and I take care of them they are financially dependent on me and I have a 4L health insurance for them. The first house is now worth 55L and I have paid off this loan. We built our 2nd house its worth around 1.2 crore and I have a loan of 70 lakhs left. I have a plot worth 30L which I have bought. I have 40L in MF and stocks, I do SIP of 1Lakh per month ( XIRR was good at 20% but now it's at 13%). I have 20L in gold and 10L in EPF. I have a 1cr term insurance and I do Jeevan umang of 4L per year started last year and Jeevan tarun for my son for 1.5L per year started 2 years ago and I have 40k of Jeevan anand started in 2011 for 25 years. My fear : My parents were dependent on me, and I had nothing to fall back on when I started my career. I do not want to be the same for my son. I want to be financially self-reliant when he starts his career and his life. I want to ensure that he doesn't worry about us when he starts his work life or if he wants to start a business, he has the freedom to do so. I have 15 years left in my career. I want to make sure my wife is also secured if I am not around. My questions is what can I do more to ensure we are financially well off?
Ans: You earn Rs. 35 LPA, and your wife earns Rs. 15 LPA.

You support your parents financially and have Rs. 4L health insurance for them.

Your first house is worth Rs. 55L and is fully paid off.

Your second house is worth Rs. 1.2 crore with a Rs. 70L loan.

You own a plot worth Rs. 30L.

Your investments include Rs. 40L in mutual funds and stocks.

You invest Rs. 1L per month in SIPs.

You have Rs. 20L in gold and Rs. 10L in EPF.

Your term insurance is Rs. 1 crore.

You have investment-linked insurance policies.

Your goal is financial independence for yourself and your family. You want to ensure your son does not have financial burdens when he starts his career.

Strengths in Your Financial Planning
You have built wealth despite challenges.

Your high savings rate helps in wealth accumulation.

Your SIPs give long-term compounding benefits.

Your first home is debt-free, providing stability.

Your gold holdings offer liquidity in emergencies.

Your EPF provides retirement security.

Your term insurance gives financial protection.

Areas That Need Improvement
Your insurance-linked policies are not wealth creators.

Your home loan is a major liability.

Your gold holdings may not generate high returns.

Your current insurance cover may not be enough.

Your parents’ health cover might be inadequate.

Your son’s education and future needs require better planning.

Steps to Strengthen Financial Security
Increase Term Insurance Cover
A Rs. 1 crore cover is low given your income and liabilities.

You should have a cover of at least 15 times your annual income.

Increase your term insurance to Rs. 2.5 crore for full protection.

Ensure your wife has her own term cover as well.

Reassess Your Insurance-Linked Investments
Traditional insurance policies offer low returns.

They do not provide inflation-beating growth.

Surrendering them and shifting to mutual funds is a better option.

This will give higher returns and better flexibility.

Pay Off Your Home Loan Strategically
Your home loan balance of Rs. 70L is a major liability.

Focus on repaying it within the next 5-7 years.

Increasing EMI payments or making part prepayments can help.

Avoid extending the tenure to reduce interest burden.

Optimise Your Mutual Fund Investments
Your SIP of Rs. 1L per month is a strong wealth-building tool.

XIRR of 13% is still a good return for long-term investing.

Ensure your portfolio has a mix of large-cap, flexi-cap, and small-cap funds.

Actively managed funds will help in capturing market opportunities.

Avoid index funds as they limit potential gains.

Strengthen Your Parents’ Health Insurance
Rs. 4L health cover for them may not be enough.

Increase their health insurance to Rs. 10L with a super top-up plan.

This will prevent financial stress in case of medical emergencies.

Plan for Your Son’s Education and Future
Higher education costs are rising rapidly.

Start a dedicated mutual fund portfolio for his education.

Avoid insurance-linked child plans as they offer poor returns.

SIPs in equity funds can provide high returns over 10-15 years.

Ensure flexibility in investments to support his career or business plans.

Secure Your Wife’s Financial Future
Your wife should have her own investments independent of you.

Ensure she has adequate insurance and retirement savings.

Consider joint ownership of assets for financial security.

Encourage her to invest in equity mutual funds for wealth creation.

Retirement Planning and Wealth Creation
You have 15 years left in your career.

Focus on accumulating at least Rs. 10-12 crore for retirement.

This will ensure financial independence and a secure future.

Continue SIPs and increase them whenever income grows.

Diversify into debt funds for stability in later years.

Systematic withdrawal plans (SWP) will help manage post-retirement cash flow.

Finally
Increase your term insurance for full protection.

Reallocate funds from low-return insurance policies to mutual funds.

Focus on clearing your home loan early.

Strengthen health insurance for your parents.

Create a dedicated fund for your son’s education.

Ensure your wife has financial security even in your absence.

Keep investing for long-term wealth creation and retirement security.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |8111 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Mar 19, 2025

Asked by Anonymous - Mar 17, 2025Hindi
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Hello Sir - I have taken a HDFC Unit Linked pension plan in 2008 and the fund value is approx. 49 lakhs. The policy matures in 2030 and allows for commutation of 1/3rd of fund value (with mandatory annuity for balance 67%). My HDFC Life Relationship manager is suggesting that he will transfer the proceeds of this fund to a new HDFC Smart life pension plan (via surrender of old policy and immediate reinvestment as single premium in the new policy) for a term of 5 years. At the vesting date, I will be allowed to remove 60% of the fund value as tax free commuted pension and will need to take annuity only for remaining 40% of fund value. This is beneficial for me (since tax free commutation will be 60% instead of current 33%). In such a case, will the surrender of old policy and immediate reinvestment into new smart pension plan be a taxable transaction in India? I have claimed 80CCC benefits for part of premiums paid in the past. HDFC has informed me that the surrender value will not be taxable as no amount is received by me and the full amount is reinvested into the new policy (HDFC will also not do TDS). Is this correct? Thanks for your advice.
Ans: You have invested in a unit-linked pension plan since 2008.

The current fund value is Rs. 49 lakhs.

The plan matures in 2030.

As per the policy, you can withdraw 33% tax-free and the rest must be used for annuity.

Your relationship manager is suggesting surrender and reinvestment into a new pension plan.

The new plan allows 60% tax-free withdrawal instead of 33%.

You need to evaluate whether this switch is beneficial from a taxation and financial perspective.

Taxation on Surrender of Old Pension Plan
Pension plans under section 80CCC get tax benefits during investment.

If you surrender, the surrender value is taxable as per your income slab.

HDFC claims that no tax will apply as the amount is reinvested directly.

However, as per income tax laws, surrendering a pension plan leads to taxation.

Even if reinvested, the surrender value is added to taxable income.

Since you have claimed 80CCC benefits, surrendering can result in tax liability.

Misconception About Tax-Free Transfer
HDFC is not deducting TDS, but that does not mean no tax is due.

Income tax liability exists even if the amount is not received in hand.

If tax authorities later verify, you may face penalties or additional taxes.

You need written confirmation from HDFC and a tax expert’s opinion.

Evaluating the New Pension Plan Offer
The new plan allows 60% withdrawal instead of 33%.

The remaining 40% must still go into annuity.

Annuity income is fully taxable every year.

The new plan has additional charges, which can reduce returns.

The lock-in period of 5 years restricts flexibility.

If your goal is wealth creation, better options exist.

Should You Switch to the New Plan?
The tax-free withdrawal of 60% seems attractive, but consider the surrender tax.

If you are in the highest tax bracket, surrendering can be costly.

Locking funds in another pension plan reduces flexibility.

Instead, investing in mutual funds can give higher returns and better control.

You can withdraw systematically without annuity restrictions.

Reinvesting in a pension plan limits future financial choices.

Better Alternatives for Retirement Planning
Instead of shifting to another pension plan, consider equity mutual funds.

Mutual funds allow withdrawals with lower tax impact than annuities.

Debt mutual funds provide stability while maintaining flexibility.

Systematic withdrawal plans (SWP) help manage retirement income efficiently.

Combining equity and debt investments gives better post-retirement security.

What Should Be Your Next Steps?
Consult a tax expert before surrendering your pension plan.

Get written confirmation from HDFC on taxation treatment.

Compare annuity income vs. mutual fund withdrawals for retirement.

Ensure flexibility in withdrawals rather than locking into another pension plan.

Build a diversified portfolio that balances risk and liquidity.

Finally
Surrendering your pension plan may trigger tax liability.

Reinvesting in another pension plan may not be the best financial decision.

You need flexibility and better returns for retirement.

Mutual funds offer tax-efficient and high-growth alternatives.

Evaluate all options before making a final decision.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

Ramalingam

Ramalingam Kalirajan  |8111 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Mar 19, 2025

Asked by Anonymous - Mar 17, 2025Hindi
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I am investing 1.5lack in sbi smart wealth plan for 7 years. My policy term 12 years. Is it a good plan for good return,2 years completed,fund value 2.7lack,Should this policy be continued? kindly guide me
Ans: You are investing Rs. 1.5 lakh per year in an insurance-cum-investment policy.

The policy duration is 12 years, with a premium payment term of 7 years.

You have completed 2 years, and the fund value is Rs. 2.7 lakh.

You want to know if you should continue this policy.

Insurance-cum-investment plans are not the best for wealth creation. You need to evaluate whether this plan aligns with your financial goals.

Issues with Insurance-Cum-Investment Plans
High Charges: These plans have high fees in the initial years. This reduces actual investment returns.

Low Returns: The returns are usually 4%-6%, lower than equity mutual funds.

Lock-in Period: You are required to stay invested for a long term, with limited flexibility.

Poor Liquidity: Withdrawing funds before maturity may result in high penalties.

Mixing Insurance and Investment: Insurance should provide protection, and investment should focus on growth. A combined product does not serve either goal efficiently.

Performance of Your Policy So Far
You have invested Rs. 3 lakh so far (Rs. 1.5 lakh per year for 2 years).

Your current fund value is Rs. 2.7 lakh, which means a loss of Rs. 30,000.

This is due to high charges deducted in the early years.

Even if the fund performs better in future, the charges will continue to impact returns.

You must decide whether to stay invested or move to better alternatives.

Should You Continue or Exit?
If wealth creation is your goal, this plan is not the best option.

If you need insurance, a pure term insurance plan is more cost-effective.

You can surrender the policy and reinvest the amount in mutual funds for better growth.

The surrender charges may reduce your corpus, but over the long term, mutual funds will give better returns.

Alternative Investment Options
Equity Mutual Funds: These provide better long-term growth than insurance plans.

Balanced Advantage Funds: These funds manage risk while giving decent returns.

Debt Mutual Funds: Suitable if you need stable returns with lower risk.

PPF or EPF: If you want a safe and tax-free investment option.

Reallocating your money into these instruments will give better returns and flexibility.

Tax Considerations on Surrendering
Surrendering before 5 years will add the maturity amount to your taxable income.

If you exit after 5 years, the amount will be tax-free.

The earlier you surrender, the higher the impact, but staying invested will continue to reduce your returns.

Consult a tax expert if required, but in most cases, switching to a better investment is more beneficial.

What Should Be Your Next Steps?
If your goal is wealth creation, surrender the policy and reinvest in mutual funds.

Buy a separate term insurance plan for financial protection.

Avoid future investments in such insurance-linked plans.

Build a diversified portfolio for long-term financial security.

Keep reviewing your portfolio annually to ensure you are on track.

Finally
Insurance-cum-investment plans do not generate high returns.

Your policy is already showing negative growth due to high charges.

Consider surrendering and shifting to a better investment strategy.

Always keep insurance and investment separate for better financial growth.

Make future investments in mutual funds and other flexible options.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

...Read more

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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