Is SBI Life wealth builder a good plan to invest 2.5 LPA for 7 years. I am 39 yr old NRI

Ans: LIC's Jeevan Shanti plan is a single premium deferred annuity plan which offers a guaranteed annuity for the rest of the policyholder's life, which can be a good option for people who are looking for a secure income stream in their retirement years.


However, the amount that you are looking at committing towards this is very high and the returns that will be earned by you will only be in the range of about 4% post tax which is not very suitable for the tenure that you're looking at. Additionally, it will only provide a fixed income which will also not take inflation into account.


Hence, we do not recommend this policy to you.

Ans: Insurance-cum-investment schemes
Insurance-cum-investment schemes (ULIPs, endowment plans) offer a one-stop solution for insurance and investment needs. However, they might not be the best choice for pure investment due to:
• Lower Potential Returns: Guaranteed returns are usually lower than what MFs can offer through market exposure.
• Higher Costs: Multiple fees in insurance plans (allocation charges, admin fees) can reduce returns compared to the expense ratio of MFs.
• Limited Flexibility: Lock-in periods restrict access to your money, whereas MFs provide more flexibility.
MFs, on the other hand, focus solely on investment and offer:
• Potentially Higher Returns: Investments in stocks and bonds can lead to higher growth compared to guaranteed returns.
• Lower Costs: Expense ratios in MFs are generally lower than the multiple fees in insurance plans.
• Greater Control: You have a wider range of investment options and control over asset allocation to suit your risk appetite.
Consider your goals!
• Need life insurance? Term Insurance plans might be suitable.
• Focus on growing wealth? MFs might be a better option due to their flexibility and return potential.
Best Regards,
K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Evaluating Your Investment Choice
Understanding the Policy

Plan Type: Max Life Smart Wealth Advantage Growth Par Plan.
Premium: Rs 1.5 lakhs annually for 12 years.
Duration: Interest returns from 2nd to 23rd year; maturity at 25 years.
ROI: Projected rate of 8%.
Critical Analysis

Returns

Guaranteed vs. Non-Guaranteed: The plan offers participating benefits which are not guaranteed.
Expected Returns: Non-linked plans often have returns lower than market-linked investments.
Liquidity

Lock-in Period: Limited liquidity with long-term commitment.
Access to Funds: No easy access to your money until maturity.
Comparison with Other Options

Term Insurance

Coverage: Higher sum assured at a lower premium.
Simplicity: Pure risk cover without any investment component.
Public Provident Fund (PPF)

Safety: Government-backed and risk-free.
Returns: Around 7-8% currently, tax-free interest.
Mutual Funds

Potential Returns: Equity mutual funds can offer higher returns, though with higher risk.
Flexibility: SIP options provide flexibility in investment amounts and duration.
Recommendation Based on Risk Appetite

Risk-Averse Approach

Term Insurance: Opt for a term plan with adequate coverage.
PPF: Invest in PPF for assured, tax-free returns.
Benefits: Combines safety with adequate life coverage.
Willing to Take Risk

Term Insurance: Secure a term plan for life cover.
Mutual Funds: Invest in a diversified mutual fund portfolio for potential higher returns.
Benefits: Offers higher growth potential with life security.
Disadvantages of the Policy

Lower Returns: Potential returns may not match inflation and market-linked returns.
Lack of Flexibility: Long-term commitment with limited access to funds.
Advantages of Suggested Approach

Term Insurance + PPF

Security: Provides financial security for your family.
Stable Returns: Offers stable, risk-free returns.
Term Insurance + Mutual Funds

Growth: Potential for higher returns through equity exposure.
Flexibility: SIPs offer flexible investment amounts and durations.
Action Plan

Review Needs: Assess your financial goals and risk tolerance.
Consult CFP: Seek advice from a Certified Financial Planner for personalized planning.
Start Early: Begin with term insurance and a mix of PPF or mutual funds based on your risk appetite.
Final Insights

Better Options: The Max Life plan may not offer the best returns.
Alternative Investments: Consider term insurance combined with PPF or mutual funds.
Professional Advice: A CFP can help tailor a plan to meet your goals.
Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

Ans: You have Rs. 20 lakhs in your bank account and own a house. At present, you are not earning, but you plan to restart your career soon with an expected income of Rs. 40,000–50,000 monthly.

Your key financial priorities include:

Funding your son’s higher education (he is 18 years old).

Planning for your retirement at age 50.

You hold an SBI Life Smart Wealth Builder policy with a yearly premium of Rs. 1 lakh. You have paid for 2 years, with a premium payment term of 7 years and a policy term of 12 years.

You also have mutual funds and health insurance in place. This is commendable as it shows thoughtful financial planning.

Let us evaluate whether to continue with the SBI Life policy or switch to mutual funds.

Understanding SBI Life Smart Wealth Builder
SBI Life Smart Wealth Builder is a unit-linked insurance plan (ULIP).

It combines insurance and investment but tends to underperform compared to standalone investments.

ULIPs have higher charges like mortality fees, premium allocation, and administration charges.

These charges eat into your returns, especially in the initial years.

Tax deductions under Section 80C are available, but only premiums within 10% of the sum assured qualify.

Disadvantages of Continuing SBI Life
The fund returns in ULIPs are generally lower than mutual funds.

High charges reduce your corpus growth potential.

You already have health insurance, which is essential.

Buying a standalone term insurance plan separately is more cost-effective than ULIPs.

Benefits of Switching to Mutual Funds
Mutual funds offer flexibility with no lock-in beyond ELSS funds (3 years).

They provide higher returns than ULIPs over long-term horizons like 10–15 years.

Actively managed funds allow diversification across equity, debt, and hybrid categories.

You can adjust your portfolio based on changing goals, such as education or retirement.

Tax Implications of Surrendering SBI Life
ULIP surrender after 5 years is tax-free.

If surrendered within 5 years, the tax benefits claimed earlier may need to be reversed.

The amount withdrawn could be added to your taxable income.

Consult a Certified Financial Planner to manage these tax implications effectively.

Steps to Execute the Switch
Step 1: Surrender the SBI Life Policy
Stop paying further premiums for the SBI Life Smart Wealth Builder policy.

Surrender the policy after understanding any exit penalties and charges.

Step 2: Allocate the Surrendered Amount to Mutual Funds
Diversify the amount into equity mutual funds, debt mutual funds, and hybrid funds.

Choose funds based on your risk appetite and financial goals.

Step 3: Use SIPs for Regular Contributions
Start systematic investment plans (SIPs) for your monthly contributions.

Begin SIPs of Rs. 1 lakh yearly or Rs. 8,000 monthly after surrendering the ULIP.

Investment Plan for Rs. 20 Lakhs
Higher Education Goal
Allocate Rs. 10–12 lakhs to a mix of equity and hybrid mutual funds.

Ensure a significant portion is invested in funds with low to moderate risk.

Use the Systematic Transfer Plan (STP) to move funds to safer options closer to need.

Retirement Planning
Allocate Rs. 8–10 lakhs for long-term growth in diversified equity funds.

Choose funds that align with your risk tolerance and provide inflation-beating returns.

Review your retirement corpus periodically to ensure it meets future needs.

Importance of Diversification
Balance equity and debt to mitigate risks.

Use equity funds for long-term wealth creation.

Use debt funds or fixed-income instruments for stability.

Consider a hybrid fund for a balanced approach between equity and debt.

Tax Considerations for Mutual Funds
Equity mutual funds: Long-term capital gains (LTCG) above Rs. 1.25 lakhs taxed at 12.5%.

Short-term capital gains (STCG) taxed at 20%.

Debt mutual funds: Gains taxed as per your income tax slab.

Plan withdrawals efficiently to reduce tax outgo.

Key Points for Financial Stability
Build an emergency fund with 6 months of expenses before investing further.

Continue your health insurance policy for financial protection against medical emergencies.

Restart SIPs once your job stabilises to ensure disciplined investing.

Final Insights
Switching from SBI Life Smart Wealth Builder to mutual funds can optimise your financial goals. This strategy offers higher returns, better flexibility, and lower costs. It aligns well with your priorities for your son’s education and your retirement. Evaluate your decisions annually and consult a Certified Financial Planner for personalised advice.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment