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Why did the customer choose a single premium instead of a 5-year premium?

Milind

Milind Vadjikar  |1238 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Feb 27, 2025

Milind Vadjikar is an independent MF distributor registered with Association of Mutual Funds in India (AMFI) and a retirement financial planning advisor registered with Pension Fund Regulatory and Development Authority (PFRDA).
He has a mechanical engineering degree from Government Engineering College, Sambhajinagar, and an MBA in international business from the Symbiosis Institute of Business Management, Pune.
With over 16 years of experience in stock investments, and over six year experience in investment guidance and support, he believes that balanced asset allocation and goal-focused disciplined investing is the key to achieving investor goals.... more
Asked by Anonymous - Feb 27, 2025Hindi
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Hello sir You have mentioned only the disadvantages of Privilege plan which clearly shows your intention. I would like to ask some question based on your previous questions- 1. Why this customer has gone for one single premium instead of 5 year premium??? 2. What was the fund in which this amount was invested and USP at that time??? This plan has clearly mentions that there will be lockin period of 5 years and 5 to 7 premium will be there. So it is clear that the way customer invested the amount is not correct.

Ans: Hello;

Request you to please provide context of the previous conversation for better clarity.

Thanks;
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  |8869 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 18, 2024

Asked by Anonymous - Sep 17, 2024Hindi
Money
Dear Sir, I have another question: I have been investing in the Bajaj Allianz Life Goal Assurance Plan for the past five years, which is a combination of insurance and investment. The total premium payment duration is 10 years, with a SIP of ?10,000 per month, followed by a lock-in period of an additional 5 years So far, my monthly contributions of ?10,000 have grown to ?9.40 lakhs, with an approximate CAGR of 16%, although the insurance coverage remains at ?12 lakhs. Initially, I did not have much knowledge but continued investing due to the plan’s market-linked structure. For the first five years, my funds were allocated to Pure Stock II and Equity Growth funds basically large-cap. Recently, mid-cap and small-cap index funds were also added to their portfolio. Now that I’ve completed 5 years of investing in large-cap components, I am considering allocating the remaining 5 years to mid-cap and small-cap funds, without increasing the SIP. This would be done through a fund switch from large-cap to mid-cap and small-cap or by dividing the allocation equally—25% each across pure-stock, equity growth, mid-cap, and small-cap funds. Would you recommend this strategy while allowing the large-cap corpurs from the first 5 years to grow at their own pace and remaining 5 years switched into mid-cap/small-cap. Since the policy will mature in 2034, this gives me ample time for the investment to grow, allowing the corpus to build significantly over the remaining years
Ans: It’s great to see you’ve stayed consistent with your investments over the past five years. Your current strategy has already delivered an impressive CAGR of around 16%. This indicates that your investment in large-cap components has performed well.

Your decision to consider diversifying into mid-cap and small-cap funds shows good insight, especially since the policy matures in 2034. This gives you ample time to ride out market fluctuations and benefit from potential growth.

Let’s assess your plan step by step.

Maintaining Large-Cap Investments
Steady Growth Potential: Large-cap funds are known for stability and relatively lower risk. Since your large-cap investments have done well, letting them grow further without switching out entirely is a wise move. Large-caps often provide steady growth over time, even in volatile markets.

Balanced Risk: As you’ve already allocated five years to large-cap funds, you have a solid base that carries lower risk compared to mid-cap or small-cap funds.

Mid-Cap and Small-Cap Fund Allocation
Potential for Higher Growth: Mid-cap and small-cap funds generally offer higher growth potential but come with increased volatility. Given that you have another 10 years for the policy to mature, adding these funds now could give you enough time to capture the potential upside of these categories.

Diversification Across Market Segments: By allocating the remaining five years to mid-cap and small-cap funds, you’re essentially diversifying across different market segments. This could help in balancing your overall risk, while providing higher growth opportunities compared to sticking only with large-cap funds.

Fund Switching Strategy: Switching some of your existing large-cap corpus into mid-cap and small-cap might reduce the stability of your portfolio. Instead, continuing with the large-cap corpus and allocating future premiums to mid-cap and small-cap funds may provide a more balanced approach.

Suggested Allocation Strategy
Divide Equally Across Funds: Splitting your contributions equally among large-cap, mid-cap, and small-cap funds seems like a balanced approach. You’ve mentioned an allocation of 25% each across pure-stock, equity growth, mid-cap, and small-cap funds. This could help in spreading out your risk while still allowing for growth opportunities.

Stay Consistent: Continuing with a steady SIP of Rs. 10,000 without increasing the amount for now is a good plan. Since you are already seeing good returns, consistency over time will be key to building your corpus further.

Evaluating Your Insurance Component
Insurance Coverage: Your current insurance coverage stands at Rs. 12 lakhs. Considering the policy is a combination of investment and insurance, it’s essential to evaluate if the coverage is adequate for your needs. Life insurance should primarily serve to protect your family, and if this amount falls short of your requirements, consider supplementing it with a term insurance plan.

Lock-in Period: Since there is an additional lock-in period of five years post the premium payment term, switching funds now and letting them grow for the next decade could be beneficial. You have ample time to ride out any short-term market volatility in the mid-cap and small-cap space.

Reviewing Your Fund Choices
Actively Managed Funds vs Index Funds: You’ve mentioned that your funds are market-linked, with some exposure to index funds. While index funds are often lower-cost options, actively managed funds can outperform them over time, especially in mid-cap and small-cap categories. Actively managed funds benefit from professional fund managers who can make strategic choices in response to market conditions, unlike passive index funds that simply track the market.

Switching to Actively Managed Funds: If a portion of your investments is in index funds, consider switching to actively managed mid-cap and small-cap funds. This will provide you with the advantage of professional management, especially in more volatile sectors like mid-caps and small-caps.

Final Insights
Long-Term Horizon: Your 10-year remaining investment window provides a good time horizon to take on the moderate risk associated with mid-cap and small-cap funds. However, always review your portfolio performance periodically to ensure it aligns with your long-term financial goals.

Balance Risk and Reward: By keeping your existing large-cap investments and diversifying into mid-cap and small-cap funds, you are effectively balancing risk with the potential for higher returns.

Insurance vs Investment: Review your insurance needs separately from your investment strategy. If the Rs. 12 lakh insurance coverage is insufficient, it’s advisable to take additional term insurance that provides higher coverage at a low cost.

It’s important to continue monitoring the performance of each fund and adjust the allocation if needed.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |8869 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 15, 2025

Money
Hi sir I have invested 6 lakh and 10 lakh per year in the smart privilege plus plan. Can you suggest the disadvantage and advantages of this plan. Shall I continue this plan upto five years. Thanks in advance
Ans: You are investing Rs. 6 lakh and Rs. 10 lakh per year in Smart Privilege Plus. That is a significant financial commitment. You deserve appreciation for the discipline and seriousness you show towards your financial future.

Now let us study this plan carefully.

Let’s evaluate both the advantages and disadvantages, and then decide what’s best for you. This answer will give a full 360-degree view.

Understanding What This Plan Actually Is
This is a ULIP – a Unit Linked Insurance Plan.

It mixes life insurance and investment in one product.

Your premium is split into two parts.

One part goes towards life cover.

Other part is invested in equity or debt funds.

This is not a mutual fund. It is an insurance-linked product.

Advantages of Smart Privilege Plus Plan
Gives life insurance along with investments.

Offers the option to choose equity or debt fund mix.

Can switch between funds without tax during the policy term.

Gives some tax benefits under Section 80C.

If policy is continued for long term, it may create decent corpus.

After 5 years, partial withdrawals are allowed, if needed.

Insurance payout is tax-free under current laws (Section 10(10D)).

Premium waiver and other riders may give some safety cushion.

Disadvantages of Smart Privilege Plus Plan
Very high charges in the early years.

Policy administration, premium allocation, fund management fees reduce your investment.

First 2 to 3 years, returns are very low due to charges.

Not flexible for regular top-ups or goal-based investing.

Returns are not transparent or comparable to mutual funds.

Lock-in of 5 years. You can’t touch your money before that.

Fund options inside ULIP are limited and less aggressive.

Switching between funds needs tracking and timing.

Insurance cover provided is usually insufficient.

Not good if you want to exit in short term.

Should You Continue This Plan?
You are putting Rs. 16 lakh every year into this plan.

That is a very high commitment for a ULIP.

If you have already completed 5 years, assess the fund value now.

If it is underperforming, it is better to surrender and move to better options.

Even if you're in the 2nd or 3rd year, it is better to assess soon.

The cost of staying in a low-growth product is huge.

What You Can Do Now – Step-by-Step
Ask the insurance company for current fund value and surrender value.

Compare the growth with mutual fund performance over same period.

Check your original policy brochure for charges and deduction details.

If you’ve completed 5 years, surrender is penalty-free.

If not, weigh how much penalty applies now vs. staying for full term.

Consult with a Certified Financial Planner before surrendering.

Don’t act in a hurry. Assess based on facts.

What to Do with the Surrender Value?
Once you surrender, you will get back some amount.

That money should be re-invested properly.

Use mutual funds through a Certified Financial Planner.

Do not invest in direct funds.

Regular plans give you advice, monitoring and adjustments.

Why You Should Avoid Direct Funds
Direct funds may look cheaper.

But they don’t give you ongoing guidance.

No rebalancing or review happens.

Without advice, mistakes are common.

Use regular plans via an MFD who is a CFP.

Why Actively Managed Funds Are Better Than Index Funds
Index funds simply copy the market.

In falling markets, they also fall fully.

Actively managed funds adjust to reduce risk.

They try to outperform the index.

For long-term goals, they give better returns than passive index funds.

How a Better Strategy Will Help
Mutual funds have more transparency.

Charges are lower compared to ULIPs.

You can choose funds as per goal and risk.

SIP can start from Rs. 500 monthly.

You can add or stop any time.

No lock-in except in tax-saving ELSS funds.

If You Have Life Insurance Goals
Buy pure term life cover.

Coverage should be minimum 15–20 times your yearly income.

Premium is very low for term plans.

No investment part. Full focus is on risk protection.

If You Have Investment Goals
Use equity mutual funds through a regular plan.

For short term goals, use debt mutual funds or liquid funds.

Choose SIPs based on risk and time horizon.

Review performance once a year with a CFP.

Tax Rules You Should Know (If You Exit This Plan)
ULIP maturity is tax-free if annual premium is under Rs. 2.5 lakh.

If premium is more than Rs. 2.5 lakh, maturity becomes taxable.

New rules treat such ULIPs like mutual funds.

Short-term gains are taxed at 20%.

Long-term gains above Rs. 1.25 lakh taxed at 12.5%.

Check if your ULIP qualifies under this rule.

Common Mistakes to Avoid Going Forward
Don’t mix insurance with investment again.

Don’t take plans with lock-ins and high charges.

Don’t choose products just for tax-saving.

Don’t invest based on friend or agent recommendation.

Don’t ignore review. Recheck all plans every year.

Final Insights
ULIPs like Smart Privilege Plus are sold as all-in-one solutions. But they are complex. They often give lower returns. Charges eat up early years. You have better choices today. You deserve flexibility, control, and transparency. If you have crossed 5 years, this is a great time to exit. Reinvest through SIPs with the help of a Certified Financial Planner. Your wealth journey will be simpler, clearer and stronger.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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

..Read more

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I cleared jee adv and am confused about taking ECM IIT Delhi or ECE IIT Roorkee/Guwahati/Kharagpur
Ans: Choosing between ECM (Electrical Engineering) at IIT Delhi and ECE at IIT Roorkee/Guwahati/Kharagpur hinges on priorities:

Placement Consistency: IIT Roorkee ECE leads with 85% placements (2024) and robust roles in embedded systems/AI, followed by IIT Guwahati (85% placements, Intel/Qualcomm roles) and IIT Kharagpur (87.05% placements, semiconductor focus). IIT Delhi’s ECM lags at 55% placements (2024), though its alumni network and Delhi’s tech ecosystem offer broader opportunities.

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Nayagam P P  |5979 Answers  |Ask -

Career Counsellor - Answered on Jun 08, 2025

Asked by Anonymous - Jun 06, 2025
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Namaste, my daughter got 410000 ranking in kcet, 86% in Pu board,her percentage in PCM is 85,she wants to join for CSE core pl. advice us
Ans: With a KCET rank of 410,000, securing CSE core through KCET counselling in Karnataka is highly unlikely, as top and mid-tier colleges (e.g., RVCE, PES, MSRIT) have cutoffs below 50,000 for CSE. However, lesser-known private colleges or newer institutes with vacancy-driven cutoffs in later rounds may offer limited opportunities. Below are 15 colleges (based on KCET seat matrices and vacancy trends) that might consider such ranks for CSE, though admission is not guaranteed and may require management quota or direct admission:

East-West College of Engineering, Bangalore

Cambridge Institute of Technology, Bangalore

SKSJT Institute of Engineering, Bangalore

Rajeev Institute of Technology, Hassan

Ghousia College of Engineering, Ramanagara

Bheemanna Khandre Institute of Technology, Bhalki

Anjuman Institute of Technology, Bhatkal

Srinivas University, Mangalore

Bearys Institute of Technology, Mangalore

HKBK College of Engineering, Bangalore

Global Academy of Technology, Bangalore

Sapthagiri College of Engineering, Bangalore

New Horizon College of Engineering, Bangalore

Acharya Institute of Technology, Bangalore (non-core branches may have vacancies)

SJB Institute of Technology, Bangalore

Key Considerations:

Management Quota: Explore direct admission via management quota in private colleges, though fees are higher.

Branch Flexibility: Consider related branches like IT, AI/ML, or Data Science if CSE is unavailable.

State-Level Alternatives: Apply for Karnataka state diploma lateral entry (after polytechnic) or reappear for KCET.

Institutional Reputation: Prioritize colleges with NBA/NAAC accreditation and placement records (e.g., MVJ College, CMRIT).

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Opt for direct admission via management quota in private colleges like Acharya IT or New Horizon, balancing affordability and infrastructure. If CSE is non-negotiable, reappearing for KCET or exploring diploma lateral entry pathways may yield better long-term outcomes.

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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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