Neha from Thane (35-year-old, married with a 7-year-old son) asks: Term insurance or ULIP for savings?

Ans: Health / Medical Insurance and term insurance for protection and Mutual Funds for Investments are better options.

ULIPs are not ideal for investment purpose; instead mutual funds should be used for investments

For 10 years (and then switch to debt funds i.e at the age of 57)

1. Axis ESG Equity fund – Growth

2. UTI Flexi Cap fund – Growth

3. PPFAS Flexi Cap – Growth

4. DSP Quant Fund – Growth

For term insurance look at LIs with high claim settlement ratio and choose for the same at your convenience.

BAJAJ ALLIANZ LIFE GOAL ASSURE - Premium Payment Term 5 Years, Started premium from March 2018 (Premium paid yearly - 2 lakh rs per annum)

HDFC Life click to invest - Premium Payment Term 5 Years, Started premium from March 2018 (Premium paid yearly - 2 lakh rs per annum)

Edelweiss Tokio Life - Wealth Plus Premium Payment Term 5 Years, Started premium from March 2018 (Premium paid yearly - 84,000 rs per annum)

Ans: Investment Strategy: ULIPs vs. Mutual Funds
ULIPs (Unit Linked Insurance Plans):
• ULIPs combine insurance coverage with investment opportunities, offering a dual benefit.
• However, they come with several disadvantages that may not align with your investment goals.
Disadvantages of ULIPs:
1. High Charges:
• ULIPs often have high charges, including premium allocation charges, policy administration charges, and fund management charges.
• These charges can significantly reduce the returns on your investment over time.
2. Complexity:
• ULIPs can be complex products, making it challenging to understand the underlying costs, charges, and investment options.
• Lack of transparency may lead to suboptimal investment decisions.
3. Lack of Flexibility:
• ULIPs typically have limited flexibility in terms of fund selection and switching options.
• This lack of flexibility may hinder your ability to adapt to changing market conditions or investment objectives.
4. Lock-in Period:
• ULIPs usually have a lock-in period of 5 years or more, during which premature withdrawals may attract penalties.
• Limited liquidity can restrict your access to funds in case of urgent financial needs.
Mutual Funds:
• Mutual funds offer a more transparent and flexible investment avenue compared to ULIPs.
• Investing through the SIP (Systematic Investment Plan) route can be a prudent choice for long-term wealth accumulation.
Advantages of Mutual Funds over ULIPs:
1. Lower Costs:
• Mutual funds generally have lower charges compared to ULIPs, translating into higher returns for investors.
• Expense ratios in mutual funds are typically transparent and competitive.
2. Transparency:
• Mutual funds offer greater transparency regarding costs, charges, and portfolio holdings.
• Investors can easily access information about fund performance, enabling informed decision-making.
3. Flexibility:
• Mutual funds provide investors with a wide range of investment options across asset classes and investment strategies.
• Investors can choose funds based on their risk tolerance, investment horizon, and financial goals.
4. Liquidity:
• Mutual funds offer greater liquidity compared to ULIPs, allowing investors to redeem their investments partially or entirely as per their requirements.
• Flexible withdrawal options provide investors with access to funds in times of need without incurring significant penalties.
Investment Strategy for Goal Achievement:
• Given your goal of accumulating 5 crores by age 45 and 10 crores by age 55, investing through SIPs in mutual funds is a preferred approach.
• Mutual funds offer lower costs, greater transparency, flexibility, and liquidity compared to ULIPs, aligning better with your long-term investment objectives.
• Calculate the monthly SIP amount required to achieve your goals based on your risk profile, expected returns, and investment horizon.
• A Certified Financial Planner can help you determine the optimal investment amount and asset allocation to achieve your financial goals effectively.
Conclusion:
• Investing through SIPs in mutual funds offers several advantages over ULIPs, including lower costs, transparency, flexibility, and liquidity.
• By staying disciplined and adhering to a well-structured investment plan, you can work towards achieving your financial goals efficiently.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

Ans: Hello;

If you have term life insurance cover 10X of your annual income then it's okay else you need to enhance your term cover.

Never couple investment with insurance.

Now even the maturity proceeds of ULIPs are subject to capital gain tax, with some conditions.

It is better to stay invested in mutual funds for long term growth, is my view.

Best wishes;

Ans: Hello;

My suggestion would be to opt for an adequate term life insurance and invest through mutual funds and NPS for other goals.

But if you are keen about ULIP only then you may select the insurer/plan of your choice or as advised by your insurance advisor.

However in the Ulip plan have 80% allocation to pure equity funds and balance 20% to debt funds to beginwith and tweak it over time as you grow older(nearing policy maturity date; ~ 30 years later) so by the time the policy is about to mature your equity allocation should be 40% or less.

Happy Investing;

Ans: You’ve taken thoughtful steps for your family—coverage, investment, and planning. That’s a strong start. Now let’s review everything in a 360-degree way.

Reviewing Your ULIP Coverage

You hold three ULIP plans, each with Rs 50L sum assured

Premium term is 8 years; policy term is 25 years

You’ve completed only two quarters of payments

ULIPs combine insurance and market-linked returns

They come with charges—fund management, mortality, admin

These charges reduce investment growth significantly

Your early-stage payments mostly go to charges, not investments

This means low actual gain so far

Coverage Adequacy Analysis

Sum assured totals Rs 1.5 crore

That may seem high, but market ULIPs often pay low returns

Term insurance offers higher cover at low cost

Example: You may get Rs 2–3 crore cover for less premium

ULIP cover might look big but gives weak real benefit

Should You Replace ULIPs with Term Insurance?

Term insurance gives pure risk cover only

For same cost, you can get significantly higher sum assured

Funds under ULIP are underperforming compared to active mutual funds

Term plans have no investment bias, only insurance

Investors often regret early ULIPs due to poor returns and lock-in

A term plan plus separate investing is more efficient

What You Could Do

Continue ULIPs only if surrender value is low

Consider surrender after complete understanding of charges

Use the freed premium to buy term insurance

Use separate investments via actively managed mutual funds

Health Insurance Review

Your Star Health policy covers Rs 3 lakh per year only

Family of four – that’s insufficient

Costs of hospitalisation, surgeries, daycare exceed this easily

Health inflation is typically 10%+ per year

This cover will exhaust quickly

You need at least Rs 10 lakh cover for each adult, Rs 5 lakh for kids

Add top-up or super-top-up cover for full peace of mind

Your Investment Strategy

You invest Rs 15–18K monthly via regular SIPs through advisor

That’s good disciplined investing

It shows long-term goal-building

But are these actively managed funds?

Regular plan via MFD with CFP support is better

You get advice, review, and rebalancing

Make sure these SIPs match your goals: education, retirement, contingency

The Pitfall of ULIP as Investment

ULIP returns are typically moderate, ~4–6%

They fall short against inflation and market-linked gains

Charges in early years eat returns

Surrender costs may reduce fund value

Lock-in period limits liquidity and flexibility

A mixed portfolio with active mutual funds gives better results

Mutual funds can deliver 10–14% returns over long term

Building the Right Insurance & Investment Mix

Let’s structure your finances smartly:

Insurance Cover

Term insurance for you and spouse with Rs 2–3 crore each

This is affordable and ensures financial security

Health Cover

Individual health insurance for family with at least Rs 10 lakh

Add a super-top-up of Rs 10–15 lakh for emergencies

ULIP Evaluation

Review performance and charges

Decide whether to continue or surrender

Consider switching to term + active investing

Savings & Goals

Continue SIPs, focus on actively managed funds

Educate children’s school & college needs

Build contingency/emergency fund amounting to 6–12 months expenses

Long-term Goals

Education fund for two girls

Retirement corpus for you and spouse

Use active funds, not index funds or ULIPs

Why Actively Managed Regular Funds Are Better

Fund managers actively buy and sell to optimize returns

They can exit underperforming sectors

They manage risk during volatile periods

Regular plans include expert guidance and rebalancing

They match your financial timeline and risk capacity

You avoid decision paralysis and behavioural mistakes

Why Not Index Funds or Direct Plans

Index funds mimic benchmarks—they don’t outperform them

Their downside protection is limited

They continue to hold weak sectors by design

Direct funds offer no support or advice

You may panic sell or buy wrong at the wrong time

CFP-backed guidance ensures discipline and clarity

Action Plan You Can Follow

Review ULIPs: charges, terms, lock-in, projected value

Calculate surrender value after 2 years payments

Compare alternative monthly premiums in term insurance

Buy a solid term plan and stronger health cover

Continue or reallocate your SIPs with CFP support

Build goal-wise separate funds for education and retirement

Keep track and revisit your financial plan every year

Final Insights

You’ve taken steps in insurance and investing—appreciate that

ULIPs are often costly and ineffective for growth

Term insurance plus actively managed funds offer clearer benefits

Health insurance needs to be strengthened

Your SIP investments are valuable if reviewed and aligned with goals

With CFP-backed planning, you can balance risk, liquidity, and returns

Gradual shifts now can build a solid foundation for your family's future

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment