Max Life Insurance Smart Wealth Early Income Frustration: Raguraman Seeks Advice

Ans: It's understandable to reassess your financial commitments, especially as you near retirement age. Your decision to review your SBI Life policy is a wise one.

Considering scheme performance and charges, surrendering the policy and reinvesting in mutual funds could align better with your goals. Mutual funds offer flexibility, diverse investment options, and potentially higher returns.

Reflecting on this transition, it's essential to appreciate the lessons learned from your previous investment choices. Life is a journey of growth and learning, and adjusting our financial plans is a natural part of that process.

Consulting with a Certified Financial Planner can provide valuable guidance tailored to your specific needs and aspirations. Remember, it's never too late to realign your financial strategy to better suit your circumstances and goals.

Ans: It’s great that you are taking steps to understand and improve your investments. You have invested Rs 6 lakhs per year in the SBI Life Smart Privilege policy, with a total investment of Rs 18 lakhs over three years. The current fund value is Rs 19.9 lakhs.

This policy invests in 70% bond funds and 30% bond optimiser funds. Now, they suggest shifting to a 100% mid-cap fund.

Understanding the Current Fund Performance

Your investment has grown from Rs 18 lakhs to Rs 19.9 lakhs in three years. This indicates a modest return. The current fund allocation in bond funds and bond optimiser funds typically yields lower returns compared to equity funds. This might be why the growth has been slower than expected.

Disadvantages of Mixing Insurance with Investment

It’s crucial to understand that insurance and investment serve different purposes. Insurance is meant for protection, while investment is for wealth creation. Mixing these often leads to suboptimal results for both.

Unit Linked Insurance Plans (ULIPs) like the one you have, combine insurance with investment. The charges involved can be high, and the returns may not be as attractive compared to other investment options like mutual funds.

Considering the Shift to Mid-Cap Funds

Mid-cap funds have the potential for higher returns. However, they also come with higher risk. The suggestion to move your investment to a 100% mid-cap fund could improve your returns but will also increase volatility. Since you have a lock-in period of five years, you cannot withdraw without penalty until then.

Exploring Mutual Funds as an Alternative

Mutual funds can be a better investment option for wealth creation. They offer a variety of funds catering to different risk profiles and investment goals. If you plan to withdraw your investment after five years, you can consider mutual funds for your future investments.

Benefits of Actively Managed Funds

Actively managed funds are overseen by professional fund managers who aim to outperform the market. These funds can provide higher returns compared to passive funds like index funds, which only track a market index.

Fund managers of actively managed funds perform thorough research and analysis to select stocks, adjust the portfolio based on market conditions, and capitalize on investment opportunities. This active management can result in better performance, especially in volatile markets.

Disadvantages of Index Funds

Index funds aim to replicate the performance of a specific index. While they have lower management fees, they lack the potential for higher returns. Index funds are limited to the stocks within the index and cannot exploit opportunities outside the index. Additionally, index funds cannot outperform the market; they can only match the market's performance, minus the fees.

Disadvantages of Direct Funds

Investing in direct funds without professional guidance can be risky. Without expert advice, you might make poor investment choices. Regular funds through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) provide the advantage of professional advice. This can help in selecting the right funds, monitoring your investments, and making necessary adjustments.

Evaluating Your Options Moving Forward

Stay Invested in the Current Policy:

Consider staying invested in the current policy until the lock-in period ends.
This avoids penalties and makes use of the current investment.
Shift to Mid-Cap Funds:

Moving your existing investment to 100% mid-cap funds could improve returns.
Understand the associated risks and be prepared for higher volatility.
Plan for Post-Lock-In Investments:

Once the lock-in period ends, plan to withdraw and invest in mutual funds.
Consider a diversified portfolio based on your risk tolerance and financial goals.
Planning Your Mutual Fund Investments

When the lock-in period ends, and you consider investing Rs 30 lakhs in mutual funds, follow these steps:

Assess Your Risk Tolerance:

Understand your risk tolerance level.
Choose a mix of equity and debt funds based on your risk profile.
Set Financial Goals:

Define your financial goals, such as retirement, children's education, or buying a house.
This helps in selecting the right funds.
Diversify Your Portfolio:

Diversify across different types of mutual funds, such as large-cap, mid-cap, small-cap, and debt funds.
This spreads the risk and maximizes returns.
Consult a Certified Financial Planner:

Seek professional advice from a CFP.
They can help design a personalized investment plan, monitor your portfolio, and make necessary adjustments.
Building a Diversified Mutual Fund Portfolio

Large-Cap Funds:

Invest in large-cap funds for stability and moderate returns.
These funds invest in large, well-established companies.
Mid-Cap and Small-Cap Funds:

Allocate a portion to mid-cap and small-cap funds for higher growth potential.
These funds invest in medium-sized and smaller companies, which can offer higher returns but come with higher risks.
Debt Funds:

Include debt funds for stability and regular income.
These funds invest in fixed-income securities like bonds.
Balanced or Hybrid Funds:

Consider balanced or hybrid funds that invest in a mix of equity and debt.
These funds offer a balanced approach with moderate risk and returns.
Regular Monitoring and Rebalancing

Regularly monitor your mutual fund investments to ensure they align with your financial goals. Rebalance your portfolio periodically to maintain the desired asset allocation. This involves selling some overperforming assets and buying underperforming ones.

Building Good Financial Habits

Develop good financial habits to achieve long-term financial goals. These include:

Living Within Your Means:

Avoid overspending and live within your income.
Saving Regularly:

Save a portion of your income regularly.
Automate your savings to ensure consistency.
Avoiding High-Interest Debt:

Stay away from high-interest debt like credit card debt.
Investing Wisely:

Make informed investment decisions based on your risk tolerance and financial goals.
Importance of Financial Education

Enhancing your financial literacy empowers you to make informed decisions. Learn about different investment options, market trends, and financial planning strategies. This knowledge helps you take control of your financial future.

Engaging with a Certified Financial Planner

A Certified Financial Planner can provide valuable guidance. They offer personalized advice, help you design a comprehensive financial plan, and assist in selecting suitable investments. Engaging with a CFP ensures that your investments align with your financial goals and risk tolerance.

Considering Tax Implications

Understand the tax implications of your investments. Different investments have different tax treatments. For example, long-term capital gains from equity mutual funds are taxed at a lower rate than short-term gains. A CFP can help you design a tax-efficient investment strategy.

Final Insights

You have made a significant investment in the SBI Life Smart Privilege policy. The returns have been modest due to the fund allocation. Considering a shift to mid-cap funds could improve returns but also increases risk. Once the lock-in period ends, consider diversifying your investments into mutual funds.

Engage with a Certified Financial Planner to create a personalized investment plan. Regularly monitor and rebalance your portfolio to stay aligned with your financial goals. Enhance your financial literacy to make informed decisions. Developing good financial habits and staying disciplined will help you achieve your long-term financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hello;

You have been misguided about features of this policy.

It is unit linked pension plan.

There is 5 year mandatory lock-in.

Please check with your insurer about net fund value as on today.

If you do not have any other pension provision then I suggest you continue with this plan.

But for this to work you have to hold it till maturity/vesting and then opt for pension.

Review the funds selected are in line with your risk profile and requirement.

Best wishes;
X: @mars_invest

Ans: You have realized early that the policy is not what was promised. This is a good thing because the earlier you act, the lower your losses.

ICICI Guaranteed Income Plan is a traditional non-linked, non-participating savings plan. These types of policies usually have:

High lock-in periods (usually 5 years).
Low surrender value in the early years.
Poor returns compared to mutual funds.
Limited liquidity.
Since you are just 6 months into the policy, let’s evaluate the best way forward.

1. Can You Surrender the Policy Now?
Yes, but there are conditions:

Surrender is allowed only after one year if at least one full premium is paid. Since you are only six months into the policy, surrender may not be allowed yet.
Surrender value is usually very low in the first few years. The insurer deducts charges, and you may get back much less than what you paid.
If premiums are unpaid, the policy becomes a paid-up policy instead of lapsing. In this case, benefits reduce significantly, but you won’t lose everything.
2. What Are Your Best Options?
Since full surrender is difficult at this stage, here are the practical options:

A. Stop Paying Premiums – Let It Become a Paid-Up Policy
If you stop paying premiums, the policy will acquire a paid-up status after one year.
You won’t get full benefits, but you avoid future payments.
At maturity, you will get a reduced payout (not ideal, but better than wasting more money).
No further action is required from your side once the first-year premium is completed.
Best for: If surrendering is costly and you don’t want further losses.

B. Complain to ICICI Prudential for Mis-Selling
Since the agent misled you, you can file a formal complaint. Follow these steps:

Write an email to ICICI Prudential’s customer care (lifeservice at iciciprulife.com) explaining the mis-selling. Mention:

The differences between what was promised and what you received.
How the agent misled you.
Your request to surrender or cancel the policy.
Visit the nearest ICICI Prudential branch and submit a written complaint with all supporting documents.

If ICICI does not respond within 30 days or rejects your request, escalate to IRDAI:

Lodge a complaint at IRDAI Grievance Redressal Portal (igms.irda.gov.in).
Call IRDAI at Toll-Free Number.
If ICICI is found guilty of mis-selling, IRDAI may order a refund.

Best for: If you have proof of mis-selling and want to fight for a refund.

C. Surrender the Policy After One Year
If ICICI does not approve cancellation and you cannot afford to keep the policy, surrender it after completing one year.
The surrender value will be lower than what you paid, but it is better than keeping a low-return policy.
Use the surrender amount for high-return investments like mutual funds.
Best for: If stopping premiums is not an option and you want to exit soon.

3. How to Prevent Such Mistakes in the Future?
Never trust agents blindly. Always ask for written policy details before signing.
Read the policy document carefully during the free-look period (first 15 days).
Avoid traditional savings plans. Mutual funds offer far better returns.
Consult a Certified Financial Planner (CFP) before making long-term investments.
Final Insights
The best step depends on whether ICICI allows surrender now. If not, the best approach is:

Stop premiums and let the policy become a paid-up policy.
File a complaint if there was clear mis-selling.
Surrender after one year if no other option works.
If you get a refund or surrender value, reinvest in mutual funds through a CFP for better returns.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

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