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Ramalingam Kalirajan |4208 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on May 30, 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

Question by Saket on May 16, 2024Hindi

Having 2 matured ulip ( 5 years lockin completed), invested 3 k each in hdfc and Bajaj. Now bajaj value is 270k, hdfc is 302k, should I leave the amount invested or should I withdraw.

Ans: Understanding Your ULIP Situation
Congratulations on completing the five-year lock-in period for your ULIPs. You now have two matured ULIPs: one with Bajaj and another with HDFC. The Bajaj ULIP is currently valued at Rs 2.70 lakh, and the HDFC ULIP at Rs 3.02 lakh. It's time to evaluate whether to leave the investment or withdraw.

Assessing ULIP Performance
Evaluating the historical performance of both ULIPs is crucial. Consider the annual returns compared to other investments. ULIPs combine insurance with investment, which impacts returns. Typically, ULIPs have higher charges than mutual funds, affecting net returns.

Charges and Costs in ULIPs
ULIPs often have several charges: premium allocation, policy administration, fund management, and mortality charges. These charges can significantly reduce your overall returns. Comparing these charges with potential returns from other investment options is essential. Lower-cost alternatives might offer better net returns over time.

Evaluating Investment Needs
Assessing your current financial goals and needs is necessary. Are these ULIPs aligned with your long-term financial objectives? If not, it might be wise to reallocate these funds. Your investment should match your risk tolerance and time horizon.

Benefits of Staying Invested
Continuing with ULIPs can offer benefits such as loyalty additions and bonuses. Check the policy terms to see if staying invested provides additional benefits. If market conditions are favourable, the investment could grow further. Evaluate the performance potential of the underlying funds.

Withdraw and Reinvest Strategy
Given the charges and potentially better alternatives, it might be prudent to withdraw from your ULIPs. Reinvesting in more cost-effective options like actively managed equity mutual funds can offer higher returns with lower costs. Consult a certified financial planner to select suitable mutual funds. Ensure your new investments align with your financial goals and risk profile.

Advantages of Mutual Funds
Mutual funds, particularly actively managed ones, often outperform ULIPs due to lower costs and professional management. Direct funds might seem appealing but require active management and market knowledge. Regular funds through an MFD with CFP credential provide professional management and advice. This ensures optimal fund performance and alignment with your goals.

Tax Implications
Consider the tax implications of withdrawing from ULIPs. ULIPs held for over five years often enjoy tax benefits on maturity. Check if withdrawing and reinvesting impacts your tax liabilities. Consult a certified financial planner for detailed tax planning.

Liquidity Needs
Evaluate your liquidity needs before making a decision. ULIPs can be less liquid compared to other investments. If you need funds soon, withdrawing might be a better option. Ensure you have enough liquidity for emergencies and short-term goals.

Reviewing Financial Goals
Revisit your financial goals and retirement plans. Ensure your investments are geared towards achieving these goals. Regularly review and adjust your investment strategy with your certified financial planner. A well-planned strategy helps secure your financial future.

Risk Management
Diversify your investment portfolio to manage risk effectively. Consider a balanced mix of equities, fixed-income instruments, and other asset classes. Regularly rebalance your portfolio to maintain the desired asset allocation. Work with a certified financial planner to tailor a risk management strategy.

Importance of Professional Guidance
Certified financial planners provide valuable insights and personalized advice. They help in selecting the best investment options based on your needs. A professional can guide you through market fluctuations and economic changes. Rely on their expertise to make informed investment decisions.

Final Assessment
Assess the overall performance and charges of your ULIPs. Compare potential returns from alternative investments. Consider your financial goals, risk tolerance, and liquidity needs. Make a decision that aligns with your long-term financial strategy.

Conclusion
Given the high charges and the availability of better-performing, lower-cost alternatives, it is advisable to withdraw your investments from the ULIPs. Reinvesting these funds in actively managed mutual funds can provide you with better returns and professional management. Regular reviews and professional guidance are key to successful investing.

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.