4. Can I cancel my policy mid-duration?

Ans: I have informed you policy details as available on the sbi life insurance website. For exact interpretation of your policy agreement terms and conditions you may kindly approach your insurance advisor.

Ans: It’s good that you’ve maintained a Systematic Investment Plan (SIP) for six years. SIPs are a disciplined way to invest regularly without being impacted by market volatility. Your Rs 2000 monthly SIP over this period is a positive step toward building wealth, but let’s carefully evaluate whether continuing or stopping makes sense.

Benefits of Staying Invested
If your SIP is in well-performing funds, continuing can offer significant long-term advantages. Since you are investing for six years already, the compounding effect will start showing better results in the upcoming years.

Here are some reasons to continue:

Rupee Cost Averaging: SIPs ensure that you buy more units when markets are low and fewer units when markets are high. This helps in averaging your costs over time and minimizes the impact of market fluctuations.

Power of Compounding: Staying invested for the long term allows your money to grow exponentially as returns are generated on both your principal and your earlier returns.

Tax Efficiency: If your SIP is in an equity mutual fund, the long-term capital gains tax on profits is lower, and after holding for over one year, you will benefit from tax efficiency.

Long-Term Financial Discipline: Regular investments help build financial discipline, and a six-year SIP shows your commitment to building wealth in a systematic way.

So, if your SIP is aligned with your financial goals, it’s wise to stay invested for a longer period.

Factors to Consider Before Closing the SIP
Before deciding to close your SIP, here are a few factors to review:

Fund Performance: Has your mutual fund consistently underperformed compared to its peers or benchmark? If yes, you may want to switch to a better-performing actively managed fund, but not close the SIP entirely.

Current Financial Situation: Are you in a financial crunch or expecting significant expenses in the near future? If your financial situation has changed, pausing the SIP might be an option.

Market Conditions: If the markets are volatile or bearish, exiting now could lock in losses. SIPs are designed to handle such volatility over time, so exiting due to short-term downturns may not be ideal.

Reviewing these factors will provide you with a clearer direction on whether you should stay invested or pause.

Importance of Reviewing Fund Performance
As a Certified Financial Planner, I recommend that you periodically review the performance of your mutual funds. Here's why:

Consistent Underperformance: If your fund has underperformed its benchmark consistently for over 2 years, it may be time to switch. Moving to an actively managed fund could yield better results in the long run.

Fund Manager Changes: A change in the fund manager or investment strategy can impact the future performance of the fund. Make sure you stay updated on these changes.

Peer Comparison: Compare your mutual fund’s performance with similar funds in the same category. If it lags far behind, explore better-performing funds.

If you find underperformance, don’t immediately close your SIP. Instead, consider switching to a better-performing actively managed mutual fund.

Disadvantages of Index Funds and Direct Funds
You should also avoid switching to index funds or direct mutual fund plans. Here’s why:

Index Funds: While index funds mirror the performance of an index, they don’t beat the market. They merely track it. If the market underperforms, so will the index fund. Moreover, in a volatile market, actively managed funds tend to outperform index funds because professional fund managers make timely decisions based on market conditions.

Direct Funds: These funds lack the expertise and advice provided by a Certified Financial Planner (CFP). Although they might have lower fees, the absence of personalized guidance can lead to poor financial decisions, which can cost more in the long term.

Actively managed mutual funds, overseen by professional fund managers, provide an edge over these options by leveraging expertise to outperform the market.

Diversifying Your SIP Portfolio
If your current SIP is in a single fund or category of funds, it’s essential to diversify for better risk management and returns. Consider the following:

Large-Cap, Mid-Cap, and Small-Cap Funds: Diversifying across market capitalizations helps balance risk. Large-cap funds offer stability, while mid- and small-cap funds provide higher growth potential.

Sectoral or Thematic Funds: While these funds can offer higher returns, they are riskier as they are focused on specific sectors. It’s better to allocate only a small portion of your portfolio here.

Debt Funds: If you are looking for stability, you can allocate a part of your SIP to debt funds. They provide consistent returns, though lower than equity funds.

By diversifying your SIP, you spread your risk while maximizing returns. Ensure the new funds align with your long-term financial goals.

SIP Continuation and Goal Alignment
You should also reassess whether your SIP aligns with your financial goals. At 45, you may be approaching certain life milestones, such as retirement planning, children’s education, or creating an emergency corpus. Here’s how to align your SIP:

Retirement Corpus: If you’re aiming to build a retirement corpus, staying invested for 10-15 years is a good strategy. Equity mutual funds are known to outperform other asset classes over the long term, helping you achieve this goal.

Children’s Education: If you are saving for children’s education, your SIP should be allocated toward a balanced or equity-oriented fund that provides moderate to high returns in 5-10 years.

Emergency Fund: SIPs are not the best option for emergency funds. Instead, liquid mutual funds or fixed deposits are better suited for immediate liquidity needs.

Ensure your SIP is serving your financial objectives effectively.

Balancing SIP and Lumpsum Investments
Since you’re already investing through SIP, you might also want to explore balancing it with a lumpsum investment. SIPs are beneficial for regular investments, but a lumpsum investment at the right time can accelerate wealth creation. For example:

Market Timing: Investing a lumpsum during a market correction can help you buy more units at a lower cost, boosting returns when the market recovers.

Goal-Based Lumpsum Investment: If you have a specific financial goal, such as buying a house or funding your children’s education, you can invest a lumpsum in a suitable fund that matches the timeframe of your goal.

However, avoid relying entirely on lumpsum investments, as SIPs provide the advantage of disciplined investing over time.

Building a Comprehensive Investment Strategy
Instead of merely continuing or closing your SIP, consider creating a more comprehensive investment strategy. Here are some steps to follow:

Review Current Investments: Examine all your existing investments, including your SIP, savings, and other assets. Ensure they are well-diversified and aligned with your financial goals.

Risk Profile Assessment: Assess your risk tolerance based on your age, income, and responsibilities. If you have a high risk tolerance, equity funds can dominate your portfolio. If you are risk-averse, include more debt funds or hybrid funds.

Set Clear Financial Goals: Define short-, medium-, and long-term financial goals. These could include retirement, children’s education, or buying property. Each goal should have a corresponding investment strategy.

Regular Review and Rebalancing: Continuously review your portfolio’s performance and rebalance it every year. Ensure it remains in line with your risk profile and financial goals.

Finally
Continuing your SIP depends on how it aligns with your long-term goals and the fund’s performance. Staying invested for 10-15 years can unlock the full potential of compounding. However, ensure you periodically review the fund and consider diversifying into other categories if necessary. Avoid index funds or direct mutual fund plans, as actively managed funds offer better growth potential over time.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
Instagram: https://www.instagram.com/holistic_investment_planners/

Ans: Hello;

Even if you surrender now you can get 60% of your fund value, after deducting charges, and for the balance 40% you have buy an annuity from SBI Life.

This is as per terms and conditions mentioned in the brochure of this plan.

Best wishes;

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