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Pankaj from Jaipur: ULIP or Mutual Funds for Investment and Insurance?

Milind

Milind Vadjikar  |746 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Nov 06, 2024

Milind Vadjikar is an independent MF distributor registered with Association of Mutual Funds in India (AMFI) and a retirement financial planning advisor registered with Pension Fund Regulatory and Development Authority (PFRDA).
He has a mechanical engineering degree from Government Engineering College, Sambhajinagar, and an MBA in international business from the Symbiosis Institute of Business Management, Pune.
With over 16 years of experience in stock investments, and over six year experience in investment guidance and support, he believes that balanced asset allocation and goal-focused disciplined investing is the key to achieving investor goals.... more
Asked by Anonymous - Nov 06, 2024Hindi
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I’m Pankaj from Jaipur. I am 49 with two sons aged 18 and 15. I currently hold life and health insurance policies. Should I switch to a ULIP for a combination of investment and insurance, or stay invested in mutual funds for long-term growth?

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;
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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Ramalingam

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Mutual Funds, Financial Planning Expert - Answered on Jul 31, 2024

Asked by Anonymous - Jul 23, 2024Hindi
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I am a 34 year old IT professional with moderate risk appetite. Should I invest in ULIP like TATA AIA param rakshak for wealth generation or start investing in Mutual Funds. my goal is to generate enough wealth in 10years to support my retirement and my two kids (4 and 2years old) education. I earn around 2L per month
Ans: Assessing Your Current Situation
You are 34 years old.

You earn Rs 2 lakh per month.

You have two kids, aged 4 and 2 years.

Your goal is wealth generation for retirement and kids' education.

Understanding ULIPs
ULIPs combine insurance and investment.

They offer life cover and market-linked returns.

They have a lock-in period of 5 years.

Disadvantages of ULIPs
High charges: Premium allocation, administration, and fund management fees.

Limited flexibility: Fixed allocation between insurance and investment.

Complex structure: Difficult to understand and manage.

Benefits of Mutual Funds
Professionally managed: Fund managers handle investments.

Variety of options: Equity, debt, and hybrid funds.

Flexibility: Adjust investments based on goals and risk.

Actively Managed Funds vs. Index Funds
Actively Managed Funds:

Fund managers aim to outperform the market.

Higher potential returns but higher fees.

Suitable for long-term goals.

Index Funds:

Track a market index.

Lower fees but limited growth potential.

Not ideal for aggressive wealth generation.

Direct Funds vs. Regular Funds
Direct Funds:

Lower expense ratio.

Require self-management.

Suitable for experienced investors.

Regular Funds:

Managed by a Certified Financial Planner (CFP).

Slightly higher fees but professional guidance.

Ideal for less experienced investors.

Recommended Investment Approach
For Wealth Generation:

Choose equity mutual funds.

Aim for long-term growth.

For Children's Education:

Consider balanced or hybrid funds.

Mix of equity and debt for stability.

Steps to Start Investing
Assess Your Risk Appetite:

Moderate risk tolerance means a mix of equity and debt.
Set Clear Goals:

Define the amount needed for retirement and education.
Choose the Right Funds:

Select funds based on performance and alignment with goals.
Regularly Review Investments:

Monitor performance and adjust as needed.
Additional Considerations
Emergency Fund:

Maintain a fund for unexpected expenses.
Insurance:

Ensure adequate life and health cover separate from investments.
Tax Efficiency:

Invest in tax-saving funds for better returns.
Final Insights
ULIPs are not ideal for aggressive wealth generation.

Mutual funds offer better flexibility and growth potential.

Align investments with your goals and risk tolerance.

Regularly review and adjust your portfolio for optimal performance.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Moneywize

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Financial Planner - Answered on Sep 21, 2024

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.

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Janak

Janak Patel  |8 Answers  |Ask -

MF, PF Expert - Answered on Dec 04, 2024

Asked by Anonymous - Nov 30, 2024Hindi
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Hi, i am 52years old, wanted to retire early, following are my investments, MF - INR 65L, Equity - INR 22L, 3 houses, one is self-occupied, other 2 houses valued at INR 90 L and INR 32L respectively, i have home loan outstanding of INR 12L, FD of INR 36L , PF INR 32L, monthly expenses requirement is INR 1 L, kindly help me to plan my early retirement. Thank you in advance for your reply on my question.
Ans: Hi,

As there are many things to consider for an early retirement, one of the first is to start thinking about it in a more realistic manner. An early retirement is not necessarily stop working life, but think of it as a more comfortable schedule that provides you opportunities to relax and pursue your passion and interests and live life on your own terms. You may or may not undertake an activity which can be monetized, meaning which provides you some sort of income - not necessarily to cover your living expenses in whole/part. So do give it some thought of how you intend to keep yourself occupied once you retire from your "current schedule". Will you generate any source of income or will you incur/require more expense.

At current age of 52, an early retirement even if we consider at 55 years of age, it a still a long life ahead. I will make a lot of assumptions in my response as these are not known from your query - such as life expectancy of another 30 years, average return of 8% on all investments for future etc. Are the 2 real estate properties earning any kind of rent that can be considered as income.
There are too many variables that go into the calculations for retirement which are specific to each individual and their circle of life.

Generic solution - You have a currently accumulated investments valued at INR 2.65 Cr (all investments less loan).

Current monthly expenses is INR 1 Lac, over which inflation needs to be applied each year (depends on lifestyle and composition of items of expenses).

So if your cumulative investments appreciate at average 8% annually, and your monthly expense increases at 6% annual inflation, your current accumulated investments are just about enough to manage expenses for next 30yrs (excluding tax implications - refer below).

Points to consider -
1. Inflation in real world is more than 6% (depends on the individual)
2. Liquidation of investments e.g. Real estate attract expenses/fees and tax on capital gains as it will be lumpsum
3. PF post retirement will earn interest only for 3 years, so you need to plan to re-invest the amount
4. Interest income on FD attracts tax at slab rate
5. Withdrawal of amount for monthly expense from your investments will attract tax on capital gains (MF and Equity)

I strongly recommend you connect with a Certified Financial Planner for personalized guidance and prepare a plan that will take into consideration your risk profile and overall investment management towards the retirement. Benefits will include a more tax efficient plan which will consider your requirements and ensure retirement goals are achieved and if there is a shortfall - what alternatives you need to consider.

Hope this is helpful and all the best for the future.

Regards
Janak Patel
Certified Financial Planner.

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Dr Nagarajan J S K   |174 Answers  |Ask -

Health Science and Pharmaceutical Careers Expert - Answered on Dec 04, 2024

Career
Sir I am preparing for mbbs, but I'm not able to crack that. I'm a middle class student. Can I pursue mbbs in abroad under 8 lakhs in a best college for mbbs?After that can I able to be a doctor in India?
Ans: Hi Lagna,

It seems you haven’t provided the details clearly on this platform. If you could share more information, I’m sure you will receive helpful input.

Based on your message, I understand that you are considering pursuing a career in medicine. If you intend to enroll in a medical program either in India or abroad and plan to practice in India after completion, here are some important guidelines according to the National Medical Commission (NMC):

You must appear for the NEET exam, as it is a mandatory requirement for anyone wishing to pursue graduate medical education in India or elsewhere while intending to return and practice in India. According to the NMC eligibility criteria: “No student shall be eligible to pursue graduate medical education either in India or elsewhere (if they want to return and practice in India), except by scoring the minimum eligible score at the NEET UG exam. The UGMEB will announce the list of eligible students periodically.”

Therefore, I recommend preparing for the NEET exam and trying to secure admission in India itself. If you choose to pursue medical education abroad, you can still practice in India, but you will need to pass exit exams as well.

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Ans: Learning is a continuous process. So doing a course in Finance should not be a problem. As far as getting into LnD domain, start with being a faculty in one of the colleges or can start with taking private tuitions. See if it suits you. If it does, then you can decide to make the switch.

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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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