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

Moneywize

Moneywize   |174 Answers  |Ask -

Financial Planner - Answered on Sep 21, 2024

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Asked by Anonymous - Sep 20, 2024Hindi
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I’m Neha from Thane. I’m 35, married with one son aged 7. I have a term insurance policy for Rs 1 crore. Should I also consider a ULIP for additional savings, or is continuing with mutual funds a better option?

Ans: Hi Neha! Considering that you already have a term insurance policy for Rs 1 crore, it's great that your family is covered in case of unforeseen events. When deciding between ULIPs (Unit Linked Insurance Plans) and mutual funds for savings and investment, here are some key points to consider:

ULIP vs Mutual Funds:

1. Cost and Charges:

ULIPs often have higher charges, such as premium allocation charges, mortality charges, and fund management fees. Mutual funds, on the other hand, usually have lower expense ratios, especially if you are investing in direct plans.

2. Flexibility:

Mutual funds offer more flexibility in terms of choosing different fund categories (large-cap, mid-cap, small-cap, debt, etc.), switching between funds, and liquidity.

ULIPs typically lock in your money for five years and come with restrictions on switching funds.

3. Investment Returns:

Mutual funds tend to offer more transparency in terms of returns and performance as they are pure investment vehicles. ULIPs, being a combination of insurance and investment, may offer lower returns compared to dedicated mutual funds.

4. Tax Benefits:

ULIPs offer tax benefits under Section 80C of the Income Tax Act, just like ELSS (Equity Linked Savings Scheme) mutual funds. However, after the budget of 2021, the tax-free advantage for ULIPs is limited if the annual premium exceeds Rs 2.5 lakh.

5. Purpose:

ULIPs mix insurance and investment, but it’s generally recommended to keep insurance and investments separate for better clarity and optimisation. Term insurance covers risk, while mutual funds focus purely on growing your wealth.

6. Recommendation:

Since you already have a good term insurance plan, it would be more beneficial to continue with or increase your investment in mutual funds. Mutual funds will provide better flexibility, potential returns, and lower costs in the long run compared to ULIPs. You can choose funds based on your risk profile and financial goals.
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.
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Mutual Funds, Financial Planning Expert - Answered on May 14, 2024

Asked by Anonymous - May 04, 2024Hindi
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I am have a ulip with 3lakh premium per year,I have already paid for 3yrs and have 3 more yrs to pay should I continue with uulip or stop the payment,as per my once we stop payment it is moved to account with 2% interest until the tenure,my current fund value is 1060000 Please advise
Ans: Deciding whether to continue or discontinue your ULIP investment requires careful consideration of various factors. Let's analyze your situation to determine the best course of action.

Assessing ULIP Performance and Features
Current Fund Value: Your ULIP has accumulated a fund value of 10,60,000 rupees over three years, indicating positive growth.

Remaining Premium Payments: You have three more years of premium payments left on your ULIP policy.

Interest on Suspended Payments: According to your policy, if premium payments are stopped, the amount is moved to an account with a 2% interest rate until the end of the tenure.

Factors to Consider
Fund Performance: Evaluate the historical performance of your ULIP fund. Compare it with benchmark indices and similar investment options to gauge its competitiveness.

Costs and Charges: Assess the charges associated with your ULIP, including fund management charges, policy administration fees, and mortality charges. Ensure these fees are reasonable and do not erode your returns significantly.

Future Financial Goals: Consider your long-term financial objectives and whether your ULIP aligns with them. Evaluate alternative investment avenues that may offer better growth potential or align more closely with your risk tolerance and goals.

Decision Making
Continue with ULIP: If your ULIP has demonstrated consistent growth, low fees, and aligns with your financial goals, continuing with premium payments may be beneficial. Ensure you can sustain premium payments without compromising your financial stability.

Stop Premium Payments: If you are dissatisfied with the ULIP's performance, facing financial constraints, or find better investment opportunities elsewhere, stopping premium payments and moving the funds to the interest-bearing account may be prudent. However, consider the opportunity cost of potentially higher returns in other investments.

Consultation and Review
Consulting with a financial advisor can provide personalized insights into your ULIP investment and help you make an informed decision. Review your ULIP policy document, assess its terms and conditions, and consider seeking professional advice before making any changes.

Your diligence in reviewing your ULIP investment reflects responsible financial management. By carefully evaluating your options and seeking guidance when needed, you're taking proactive steps towards optimizing your financial well-being.

Best Regards,
K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Ramalingam Kalirajan  |6978 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 13, 2024

Asked by Anonymous - May 13, 2024Hindi
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Should one invest in ULIPs if they have LIC, Term Insurance, Medical Insurance. Or investing through the SIP route is the best medium going forward. I am currently investing 30k every month in SIP. I am 37 Year old. I want to go Upto ?75000K every month in the next 3 months gradually. Should I continue investing in SIPs or I can also diversify into ULIPs. My goal is to accumulate 5 cr by 45 years of age. 10 cr by 55 years of age. How much should i invest monthly?
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

..Read more

Ramalingam

Ramalingam Kalirajan  |6978 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 18, 2024

Asked by Anonymous - Jun 12, 2024Hindi
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Hello All, Hope this finds you well and healthy. I am 31 year old and working in MNC. My monthly income is 1.04L per month. Currently I am investing 20K in mutual funds (8k elss 12k (mid small and large). Yearly I invest 50k in NPS + 10k in PPF + HEALTH INSURANCE+ 38K TERM PLAN. My monthly expense is almost 50-60k. I seek help here, how shall I plan my future investments. Is investing in ULIP or market linked plans such as HDFC, Tata AIA capital guarantee solution. I am looking for down the line after 10-12 year I have sufficient amount for child further education or for buying home.
Ans: Your proactive approach towards financial planning is commendable, and you are on the right track with diversified investments. Let's delve deeper into optimizing your future investments to ensure you achieve your financial goals, including your child's education and buying a home.

Current Financial Overview
At 31, you have a solid foundation with a monthly income of Rs 1.04 lakh. Here's a breakdown of your current investments and expenses:

Mutual Funds: Rs 20,000 (Rs 8,000 in ELSS, Rs 12,000 in mid, small, and large-cap funds)
NPS: Rs 50,000 annually
PPF: Rs 10,000 annually
Health Insurance and Term Plan: Rs 38,000 annually
Monthly Expenses: Rs 50,000 to Rs 60,000
Mutual Funds: A Strong Foundation
Your current investment in mutual funds is well-balanced. ELSS provides tax benefits under Section 80C, while mid, small, and large-cap funds offer growth potential.

Benefits of Your Current Mutual Funds
Tax Efficiency: ELSS funds reduce your taxable income.
Growth Potential: Mid, small, and large-cap funds diversify risk and potential returns.
Flexibility: You can adjust contributions based on market conditions and financial goals.
Evaluating ULIPs and Market-Linked Plans
ULIPs (Unit Linked Insurance Plans) and market-linked plans like HDFC and Tata AIA capital guarantee solutions offer both insurance and investment. However, it's essential to understand their pros and cons before investing.

Pros of ULIPs and Market-Linked Plans
Dual Benefits: ULIPs provide insurance and investment under one plan.
Tax Benefits: Premiums paid may qualify for tax deductions.
Flexibility: You can switch between equity and debt options based on market conditions.
Cons of ULIPs and Market-Linked Plans
High Costs: ULIPs often have higher charges compared to mutual funds, affecting returns.
Lock-In Period: Typically, ULIPs have a lock-in period of five years, reducing liquidity.
Complexity: Understanding charges and benefits of ULIPs can be challenging.
Prioritizing Financial Goals
Focusing on your child's education and buying a home requires careful planning. Here's a step-by-step approach to help you achieve these goals.

Step 1: Define Clear Goals
Child's Education: Estimate future education costs and timeframe.
Buying a Home: Determine the budget and location for your future home.
Step 2: Assess Your Risk Tolerance
High Risk Tolerance: Invest more in equity mutual funds for higher returns.
Moderate Risk Tolerance: Maintain a balanced portfolio with equity and debt funds.
Low Risk Tolerance: Focus on debt funds and fixed income instruments.
Step 3: Optimize Existing Investments
Mutual Funds: Continue investing in diversified mutual funds.
NPS: Increase contributions for long-term retirement benefits.
PPF: Consider maxing out your PPF contributions for stable returns and tax benefits.
Adding New Investment Options
To further diversify your portfolio and enhance returns, consider these additional investment options.

Systematic Investment Plans (SIPs)
Regular Investment: SIPs ensure disciplined investing with regular contributions.
Rupee Cost Averaging: Investing at different market levels reduces the impact of market volatility.
Flexibility: Adjust SIP amounts based on financial goals and market conditions.
Actively Managed Funds
Professional Management: Fund managers actively select securities to outperform the market.
Strategic Adjustments: Managers can adjust the portfolio based on market trends and economic conditions.
Potential for Higher Returns: Skilled managers may achieve higher returns compared to index funds.
Debt Funds
Stable Returns: Debt funds provide regular income with lower risk compared to equity funds.
Diversification: Including debt funds reduces overall portfolio risk.
Liquidity: Debt funds offer better liquidity than fixed deposits or ULIPs.
Planning for Child's Education
Education costs are rising, and planning early ensures you can meet future expenses without stress.

Step 1: Estimate Education Costs
Current Costs: Research current education expenses for your preferred institutions.
Inflation: Account for inflation when estimating future costs.
Timeframe: Determine the number of years until your child starts higher education.
Step 2: Create an Education Fund
Equity Funds: Invest in equity mutual funds for long-term growth.
Child-Specific Plans: Consider child education plans with benefits tailored to education funding.
Regular Contributions: Set up SIPs to build a corpus over time.
Planning for Buying a Home
Buying a home requires substantial financial planning and saving. Here's a structured approach to achieve this goal.

Step 1: Determine Your Budget
Location and Size: Decide on the location and size of the home you wish to buy.
Down Payment: Calculate the down payment required and monthly EMIs you can afford.
Additional Costs: Consider additional costs like registration, maintenance, and property tax.
Step 2: Build a Home Purchase Fund
Equity Funds: For a 10-12 year horizon, equity funds can provide significant growth.
Debt Funds: Include debt funds for stability and lower risk.
Recurring Deposits: Consider recurring deposits for regular savings with fixed returns.
Insurance and Emergency Fund
Ensuring adequate insurance coverage and maintaining an emergency fund are essential components of financial planning.

Health Insurance
Adequate Coverage: Ensure your health insurance covers potential medical expenses.
Regular Review: Periodically review your coverage to adjust for inflation and changing needs.
Top-Up Plans: Consider top-up health insurance plans for additional coverage.
Term Insurance
Adequate Sum Assured: Ensure your term insurance covers your family’s future financial needs.
Regular Review: Update your term plan as your financial responsibilities grow.
Riders: Consider adding riders like critical illness for comprehensive coverage.
Emergency Fund
Three to Six Months: Maintain an emergency fund covering 3-6 months of living expenses.
Liquid Assets: Keep the fund in liquid assets for easy access during emergencies.
Regular Contribution: Contribute regularly to ensure the fund remains adequate over time.
Avoiding Common Investment Pitfalls
Staying aware of common pitfalls helps protect your investments and achieve your financial goals.

Avoid High-Cost Investments
High Charges: Avoid investments with high charges that erode returns, like certain ULIPs.
Hidden Fees: Be aware of hidden fees in investment products.
Diversify Your Portfolio
Single Asset Risk: Avoid concentrating investments in a single asset class.
Balanced Approach: Maintain a mix of equity, debt, and other instruments.
Regular Review and Rebalance
Performance Review: Regularly review investment performance to ensure alignment with goals.
Rebalancing: Rebalance your portfolio to maintain the desired asset allocation.
Final Insights
Your current financial strategy is commendable, showing a well-diversified approach. To optimize your investments for future goals like child education and buying a home, consider increasing contributions to equity mutual funds and maintaining a balanced portfolio. Avoid high-cost investments like ULIPs unless necessary for specific benefits. Regularly review and adjust your portfolio with the help of a Certified Financial Planner to stay on track. Your proactive approach today will ensure a secure and prosperous future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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Hi, I am in a interfaith relationship since 6+ years and I have the sweetest and most well mannered and caring guy as my boyfriend. I was born as a Hindu and he’s been adopted in a Muslim family. Though we both are agnostic and religion barely made any difference or issues in between us. My family knows about us since the last 2 years and his family has accepted us and is willing to talk to my family. Whereas, my father was initially understanding and willing to talk but now he has turned totally against this relationship after my mother,brother and other relatives have influenced them. They have asked me to choose between them and my love. I told them that by doing this they’ve left me no choice but to die, in which they taunted me asking in which ritual my body will be cremated-the hindu way or the Muslim. I am mentally and emotionally broken and cant seem to think straight. It feels like i am being dragged into a blackhole and cant really come out of it. What should i do?
Ans: give yourself permission to focus on your mental and emotional well-being. It can be incredibly helpful to talk to a counselor or therapist who can give you a safe space to work through the overwhelming emotions you’re feeling. These conversations could give you clarity and strength to make decisions that prioritize your happiness and peace.

At some point, it may be worth approaching your family again, but with a different mindset—one that isn’t trying to change their beliefs but instead focuses on helping them see your happiness as a priority. You could try to appeal to them on the basis of your well-being, asking them to look beyond religious labels to see the person who loves and cares for you. They may need time, and they may resist, but sometimes families gradually come to understand that happiness in a relationship matters more than anything else.

In the meantime, lean on your boyfriend for support, and let him know how much you’re struggling. If he’s as caring and understanding as you’ve described, he’ll stand by you through this and will want to help you feel less alone. Whatever you decide, make sure it’s a choice you feel aligns with your own sense of self and future. The love you feel is real, and though this journey is incredibly hard, there is a path forward—even if it doesn’t feel clear right now.

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Asked by Anonymous - Oct 12, 2024
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This will be kind of a long story... I've been in a relationship for over 4 years now and I really love spending time with my girlfriend and I never cheated on her...like she is the one, but as time goes I seem to have a different opinion of what I want in life...for she doesn't want kids and I do and sometimes that's a reason for discussion but not over-escalating it just ends there...lately we don't even have sex like about 2 months now...she fell ill for some time and now she is ok we barely get to go out. So I started this new job on some kind of high position within the company like a month ago and we had an after-office time, there was this girl there that is in another department...didn't really called my attention in there, we sat in a table and started talking and drinking, in one of the things we talked I spoke about my current relationship (everyone did) and even metioned the I want kids problem. The party was over finished in that place and we hit a club. In there of course booze was up and this girl just started dancing all sexy on me and I was like oookay then...well of course alcohol gets the best or worst of us so I started dancing with her and In one of those moments we were sooo close and I yes...I tried to kiss her...she just laughed and avoided in the first time but then...we were kissing and touching just too passionaly that having the clothes on was really annoying ..well I was really drunk, problem for me was about our other colleagues...will they report this...will she tell? (this can really go against me as I am new in the company) will others tell (because everyone saw us) I didn't wrote her later because I was too damn embarrassed, in the next week I was like so nervous at the job and when we cross paths we just say hi in a normal way and this just brings thoughts to my head of guilt and embarrassement but NOT REGRETTING thoughts... this no regret thing is driving me crazy...I see her and start looking at her in a different way, like I pay attention to the way she dress, the way she has her hair, she walks and I said to myself...WTF IS HAPPENING am I falling gor this girl? So I wrote her and wanted to clear up some things...if she told someone (but it was more line an excuse just to talk to her about what happened and try to know what she felt), but she justs...DOESN'T HAVE IDEA WHAT I AM TALKING ABOUT...really? And as you can imagine we didn't get to talk about this and honestly in my head I get lot of mixed ideas about this reaction of her...like the things I said before anything happened...like my relationship thing or she is just applying some sort of strategy or It was just one night rush and FULL of regrets now... but c'mon we see each other everyday. I KNOW I did bad for cheating on my girlfriend but the emotion there is absolutely gone and the thing with this girl...well when we talked in the bar I spoke of wanting to have kids and everything maybe she also wants it? Did she took all the first interaction and I was really being attractive there? Well what should I do? I am not writting her anymore to push her to talk...her reaction of ignoring what happened gives me the right sign to stop it there I want her really bad and I'm about to give up my relationship in these days...
Ans: Given how strong the chemistry was with this colleague, it’s understandable that her recent dismissal of the incident feels confusing. There’s a chance that for her, it was an impulsive, one-time event—something she might not want to pursue further for her own reasons. Her behavior could be a signal that, despite the attraction, she wants to keep things professional, possibly feeling it would complicate both of your lives to acknowledge what happened. This can feel conflicting, especially since the experience brought out emotions you might not have felt in a while.

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Remember, whatever happens with this colleague, there’s value in addressing the core issues in your relationship first. Taking time to be clear about what you want in a partnership—whether it’s more shared goals, connection, or family—can help you find fulfillment in the long run, whether it’s with your current partner or someone new.

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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