Hello Sir, I am a (46 Years Old) accountant in a small level proprietorship company. I am a BSc degree holder with a experience of Accounts and do upto finalization. I do not get a permenant job in my past experience (25Years) almost changed six companies due to different reasons (now working in a 7th company) Hence I decided to invest my current savings of (Rs. 25Lakhs) in a Income Policy from April 2024 (Monthly Payable). Whether it is good choice or not. Since this current job also not a stable one. I do not have any regular income. Also I am a single (unmarried). Need your suggession. Thanks In Advance. Narayanan

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

Ans: Your decision to purchase the ICICI Pru Guaranteed Income For Tomorrow (GIFT) Plan reflects a prudent approach to creating a future income stream. The policy offers guaranteed returns and aligns well with long-term financial security. However, it’s essential to carefully assess whether continuing with the premium payments will help you meet your financial goals efficiently.

Let’s evaluate the key elements of this plan, the expected returns, and alternative options to help you make an informed choice.

Key Highlights of Your Current Insurance Plan
Here’s a quick summary of your ICICI Pru Guaranteed Income For Tomorrow Plan:

Premium Payment Term (PPT): 12 years
Annual Premium: Rs 5 lakh + GST (Rs 5,22,500 in the first year, Rs 5,11,250 for the next 11 years)
Annual Payout Start: September 2038
Annual Payout Amount: Rs 7,90,926 (tax-free) for 25 years
Return of Premium with Bonus: Rs 66 lakhs at the end of the payout term in 2062
Evaluation of Returns: Rate of Return and XIRR
Rate of Return: This insurance-cum-guaranteed income plan typically offers returns in the range of 5-6%, which is relatively modest compared to other investment vehicles.

Expected XIRR: Calculating the exact XIRR is complex as it considers both premium payments and the eventual payouts. Given the guaranteed amount, the XIRR is expected to be in the range of 5.5-6.5%.

Opportunity Cost: This return may appear low compared to the potential returns from other investment options like mutual funds, especially when compounded over 12 years. High inflation rates may further erode the purchasing power of the fixed payouts, potentially affecting your financial freedom in the future.

Benefits of Continuing with the Plan
If your primary goal is guaranteed income and stability, here’s why you might consider continuing:

Assured Income: This plan provides a predictable, tax-free income stream for 25 years, helping you maintain cash flow without market risk.

Capital Preservation: With the return of premium and bonus at the end, the plan ensures capital preservation, which may suit a conservative investment outlook.

Tax-Free Income: The payouts are tax-free, which can be beneficial, particularly if you anticipate a high tax bracket in the future.

Considerations for Discontinuing the Plan
Although this plan provides guaranteed income, certain factors may urge you to consider discontinuing:

Lower Rate of Return: Traditional insurance-cum-investment plans generally offer lower returns. These returns may not match the long-term growth rates required for wealth accumulation.

Liquidity Constraints: The plan restricts liquidity since you must commit for 12 years, with no flexible withdrawal options. This can be a drawback if you anticipate needing funds for other investments or emergencies.

Inflation Impact: While the payouts are fixed, the real value of the income will diminish over time due to inflation. Alternative investments can offer growth that more effectively counters inflation.

Alternate Investment Options
If you decide to discontinue premium payments, here are some diversified options to consider for potentially higher returns with a balanced risk:

Actively Managed Mutual Funds: Investing in actively managed funds can offer a blend of equity and debt exposure. Experienced fund managers adjust portfolios to capture market gains while managing risk. Unlike index funds, actively managed funds may outperform due to professional insights. Explore equity mutual funds with a long-term focus for higher returns.

Balanced or Hybrid Funds: These funds offer a combination of equity and debt, reducing volatility while aiming for reasonable growth. Balanced funds are suitable for generating wealth over time, with moderate risk.

Debt Mutual Funds: For conservative growth, debt funds provide stable returns with relatively low risk. Note that debt fund returns are now taxed at your income slab rate, which may affect post-tax returns. Consider debt funds if you prefer a safer, predictable growth without long lock-ins.

Public Provident Fund (PPF): If you haven’t maximized your PPF contributions, this instrument offers tax-free interest and principal, with long-term compounding benefits. PPF is risk-free and provides stable, inflation-protected growth over time.

Sovereign Gold Bonds (SGB): For those interested in gold investments, SGBs offer regular interest income and long-term price appreciation potential. SGBs come with tax-free redemption if held to maturity, providing a hedge against inflation.

Systematic Withdrawal Plan (SWP) in Mutual Funds: An SWP offers regular payouts by systematically redeeming mutual fund units. Unlike insurance payouts, SWPs give you flexibility, and the invested corpus has growth potential, enhancing overall wealth.

Recommendation for Next Steps
To determine whether to continue with the premiums, consider the following steps:

Re-evaluate Your Financial Goals: Consider your long-term objectives and whether guaranteed, fixed returns align with them.

Assess Liquidity Needs: If liquidity is crucial, continuing this plan may limit your ability to allocate funds to better-suited investments.

Discuss with a Certified Financial Planner (CFP): Consulting a CFP can provide tailored insights and assist in calculating the precise XIRR and assessing the tax impact on your returns.

Final Insights
Your current insurance plan provides stability and guaranteed returns, which is suitable if you prioritize capital preservation. However, if wealth accumulation and inflation protection are key, consider exploring other options that offer higher growth potential with some market exposure.

Choosing the right path ultimately depends on balancing security with growth, ensuring that your investments remain aligned with your future financial goals.

Best Regards,

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

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