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

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

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