NRI With ULIP: Should I Cancel Policy for Apartment Down Payment?

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

Ans: To be specific
To get clear reply & tax calculation, I suggest you to please furnish the details : ULIP Policy & Company, Period of Premium paid in years & Annual Premium amount.
Thanks.

Ans: Partial Withdrawal Tax Implications
Partial Withdrawal - Tax Implication Now:

Since your ULIP was bought before 2010, the partial withdrawal is tax-free if the premium does not exceed 10% of the sum assured (Rs 5.2 lakhs in your case).
No TDS Deducted - Treatment for Tax Filing:

If no TDS is deducted, the withdrawal is still tax-free and does not need to be treated as taxable income.
Surrender Tax Implications
Surrender of Policy - Tax Implication Now:

If you surrender the ULIP, the maturity proceeds are tax-free, as your policy was purchased in 2008, provided the premium does not exceed 10% of the sum assured.
No TDS Deducted on Surrender - Treatment for Tax Filing:

If no TDS is deducted, the surrender value is still tax-free and does not need to be reported as taxable income.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Evaluation of Your Current ULIP Investment for Your Child’s Future

You have started a ULIP for your child’s future.

Your investment is Rs 7,000 per month.

The total invested value is Rs 70,000 till now.

The current fund value is only Rs 52,300.

You are investing in a small-cap fund under this ULIP.

Your son is 4 years old now.

Let us now assess this decision step by step.

Appreciating Your Intention

You have thought about your son’s future early.

You are trying to build wealth with discipline.

This is a very good habit.

Starting early always gives a good advantage.

Protecting your child’s future is always a wise move.

You are also investing monthly without fail.

This kind of consistency is rare.

Understanding the Nature of ULIPs

ULIP means Unit Linked Insurance Plan.

It mixes insurance and investment.

You pay premiums monthly or yearly.

A small part goes to life insurance cover.

The remaining is invested in the market.

Charges are very high in the first 5 years.

Fund management charge, allocation charge, mortality charge.

These charges reduce your investment value.

You also have lock-in for 5 years.

You can’t withdraw before that period.

Small-Cap Fund in ULIP – Risk Factor

You have selected small-cap fund.

Small-cap funds are very volatile.

They fall sharply in market correction.

They rise more during market rally.

It is not safe for child’s future goals.

Risk is high and return is not steady.

Also, in ULIP, the fund performance is not very transparent.

You can’t track fund managers or detailed strategy.

ULIP Performance – Present Situation

You invested Rs 70,000 in total.

Current value is only Rs 52,300.

That means you are in a loss now.

The loss is nearly 25%.

This is not acceptable in short time.

The charges have eaten the returns.

Market may also be volatile.

Small-cap correction affects your value badly.

Compare ULIP vs Mutual Fund for Child Goal

Mutual fund gives more flexibility.

You can choose from many categories.

Charges are lower in mutual funds.

You get full transparency in funds.

Mutual funds are better regulated.

You can track performance easily.

You can switch any time without high costs.

You get better returns for long-term.

Why You May Consider Surrender of ULIP

You have already seen negative growth.

Charges are high and will continue.

Fund selection is very limited.

Child’s future needs stable, reliable returns.

ULIPs don’t support goal-based investing properly.

After lock-in, no reason to continue.

Even if loss is there now, stopping further loss is wise.

Shift money to better product for long-term.

Where to Shift After Surrender – A Better Path

Start SIP in mutual funds through Certified Financial Planner.

Choose regular plans via qualified Mutual Fund Distributor.

Don’t go for direct plans – they lack expert guidance.

Avoid index funds – they just copy the market.

Use active funds – they aim to beat the market.

Let expert select best funds for you.

Create mix of large-cap, mid-cap, balanced funds.

Invest based on time frame and goal.

Review every year with your Certified Financial Planner.

Why Direct Mutual Funds Are Risky for You

No one to guide you in choosing funds.

You may select wrong fund unknowingly.

No one reviews your investments regularly.

You may react emotionally during market falls.

No discipline without expert support.

Regular plans through MFD and CFP give full service.

Why Index Funds Are Not Ideal for Child Planning

Index funds only match the market returns.

They don’t beat the market ever.

During market falls, they fall completely.

Fund manager has no control.

All stocks are included, good or bad.

No downside protection.

Not suitable for child’s long-term needs.

Active funds are better with risk management.

What to Do Now – Step-by-Step Guidance

Continue paying ULIP till lock-in completes (if under 5 years).

After lock-in, check surrender value.

Surrender policy and stop further payments.

Take the fund value even if at slight loss.

Reinvest that amount into mutual fund SIP.

Start SIP with regular fund through CFP support.

Invest monthly same Rs 7,000 amount.

Select diversified fund mix for stability and growth.

Set goal for your son’s education and milestones.

Use goal calculator to fix amount and duration.

Stay disciplined for next 14 to 16 years.

Don’t withdraw in between for other needs.

Monitor performance with expert every year.

Switch funds if any underperforms consistently.

Avoid high-risk sector funds.

Avoid guaranteed return insurance-cum-investment policies.

Additional Tips for Child Financial Planning

Buy pure term plan for yourself.

Term plan gives full life cover at low cost.

Use health insurance for family protection.

Create emergency fund of 6 months expenses.

Don’t depend only on child policies.

Build your own wealth systematically.

Children need money, not policies, for education.

Review portfolio every year.

Increase SIP with your income rise.

Don’t panic in market fall – stay invested.

Finally

You started early – that’s good.

But current product is not helping your goal.

ULIP has high charges and low flexibility.

Small-cap funds increase volatility.

You may consider surrendering it after lock-in.

Reinvest wisely in mutual funds.

Use Certified Financial Planner’s help for proper fund mix.

Active funds through MFD give better value.

Avoid index funds and direct plans.

Align investment to your son’s future education needs.

Stay focused, review regularly, and be patient.

This approach can build better wealth for your child.

Long-term vision with proper planning works best.

You deserve better returns with low risk for your family.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Ans: Yes, your understanding is correct.

If you surrender before 5 years, the fund value moves to the Discontinued Policy Fund. It earns low returns (around 4%) and is paid out only after 5 years.

Making the policy paid-up by stopping premiums but continuing till the 5th year is better than surrendering now. This way, your money stays in the original ULIP fund, which can grow more than 4%.

So yes—do not surrender now. Stop further premiums. Let the policy run till 5 years. Exit after that.

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