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Should I surrender my ABSL Weathsmart fund after just 1 month?

Ramalingam Kalirajan |7047 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 22, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by Bhavik on Jul 05, 2024Hindi

Hi Sir I just purchase ABSL weath smart fund with 3.5 amnul primium. after that I reallise that made mistake n purchased without proper reaserch. juat 1 month primium paid... should in surrnader this plan?

Ans: You’ve taken a step in securing your financial future by purchasing a policy. However, it’s vital to assess its suitability for your needs. Purchasing any financial product, such as the ABSL Wealth Smart Fund, without thorough research can sometimes lead to regret. Your realization now presents an opportunity to reassess and make informed decisions.

Understanding the ABSL Wealth Smart Fund
Before deciding to surrender the policy, it's crucial to understand what you’ve purchased. The ABSL Wealth Smart Fund is likely an insurance-cum-investment plan. These plans often combine life insurance with an investment component, typically in mutual funds or market-linked instruments. While they offer some benefits, there are also downsides to consider.

Advantages:
Insurance Cover: Provides life insurance along with investment opportunities.
Regular Premium Payments: Encourages disciplined saving.
Potential for Growth: Market-linked returns, which could be higher than traditional savings plans.
Disadvantages:
High Costs: These plans usually come with higher charges, such as fund management fees and mortality charges.
Lower Returns: Due to the costs, the net returns might be lower than what you'd get from pure investment products.
Complexity: These plans are complex, making it hard to understand the returns, costs, and benefits.
Lock-In Period: Typically, there’s a lock-in period of 5 years, during which surrendering might lead to financial losses.
Assessing the Surrender Option
Since you’ve only paid one premium, surrendering the policy is an option. But, let’s carefully evaluate the pros and cons of doing so.

Pros of Surrendering:
Limited Financial Loss: Surrendering early might limit your financial loss. You may lose a portion of your premium, but it might be better than continuing with a plan that doesn't meet your needs.
Opportunity for Better Investment: The funds can be redirected into more suitable investment options with potentially higher returns.
Simplified Financial Portfolio: By focusing on separate insurance and investment products, you can gain better clarity and control over your finances.
Cons of Surrendering:
Initial Financial Loss: Early surrender usually means a loss on the premium already paid.
Missed Potential Benefits: If the market performs well, there might be missed growth opportunities.
Administrative Hassles: The surrender process might involve paperwork and time.
Alternative Investment and Insurance Strategies
If you decide to surrender, consider reallocating your funds into more effective and straightforward financial products. Here's how you can approach it:

Separate Insurance and Investment
Term Insurance: A pure term insurance plan can offer high life cover at low costs. It's straightforward and serves the primary purpose of insurance—financial protection.

Mutual Funds: Instead of a combined insurance-investment plan, you might consider investing in mutual funds for wealth creation. Mutual funds are flexible, transparent, and can be chosen based on your risk tolerance and investment horizon.

Evaluate Existing Investments
Assess Existing Mutual Funds: Review your current mutual fund portfolio. Ensure it aligns with your risk profile and long-term goals.

Diversification: Make sure your investments are diversified across asset classes and sectors to minimize risk.

Regular Monitoring: Keep track of your investments periodically. It's important to rebalance the portfolio if it strays from your financial objectives.

Consultation with a Certified Financial Planner
Considering the complexity of your situation, it might be beneficial to consult with a Certified Financial Planner (CFP). A CFP can help you:

Conduct a Thorough Review: They can assess your current financial position, including the ABSL Wealth Smart Fund and other investments.
Create a Customized Plan: They’ll help you create a plan that aligns with your financial goals, whether it's wealth creation, retirement planning, or securing your family’s future.
Ongoing Advice: A CFP can provide continuous advice as your financial situation evolves.
Final Insights
Surrendering the ABSL Wealth Smart Fund after just one premium might seem like a loss. However, this decision could help you avoid larger financial losses in the future if the plan doesn’t align with your goals. By separating your insurance and investment needs, you can achieve a more focused and efficient financial strategy.

Investing with clarity and purpose is crucial. A well-thought-out financial plan will provide you with peace of mind and a secure financial future.

If you’re unsure, consulting with a Certified Financial Planner will offer the guidance and assurance needed to make informed decisions.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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.