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: The LIC Pension Plus Plan is designed to provide a pension after the policyholder retires. However, let's take a closer look at its features and suitability for your retirement goals.

Key Features of LIC Pension Plus Plan
Regular Contributions: You invest Rs. 1.5 lakh annually. This amount is accumulated and invested over the policy term.

Investment Choices: The plan usually offers a choice of funds (typically debt and equity). You can select according to your risk profile.

Maturity Benefit: At the end of the term, the accumulated amount is used to purchase an annuity for your pension. Only one-third of the corpus can be withdrawn as a lump sum.

Annuity Purchase: The remaining two-thirds must be used to purchase an annuity, which will provide you with regular income post-retirement.

Is LIC Pension Plus a Good Choice for Pension?
1. Returns May Be Lower
LIC Pension Plus is largely conservative in its investment approach. The returns are typically lower compared to other pension plans or mutual funds. This means the corpus you accumulate may not grow as much as it could in higher-return investments.

Action Point: If your risk appetite allows, consider higher-return investment options to accumulate a larger retirement corpus.
2. Liquidity Constraints
One key limitation of LIC Pension Plus is its lack of flexibility. You are required to use two-thirds of the accumulated amount to purchase an annuity, which may not provide the highest return or flexibility in the future.

Action Point: You could explore more flexible investment vehicles that give you full control over the corpus and payout methods at retirement.
3. Taxation on Annuity
Annuity income is taxable, meaning the pension you receive from this plan will be added to your income and taxed as per your slab. This can reduce the actual post-tax income you receive in retirement.

Action Point: Other retirement products, like equity mutual funds, may offer more tax-efficient options for withdrawals, especially if you need a lump sum for post-retirement needs.
Comparing to Mutual Funds for Retirement Planning
1. Flexibility in Withdrawal
Equity mutual funds, especially those designed for long-term retirement planning, offer more flexibility. You can withdraw your entire corpus when needed, or structure it in a way that suits your specific financial needs in retirement.

2. Higher Return Potential
Actively managed equity funds have historically provided higher returns than traditional pension plans. This means your retirement corpus can grow much faster, giving you more financial security in your later years.

Avoid Direct Mutual Funds: While direct funds have lower costs, they lack professional guidance. It’s advisable to use a Certified Financial Planner for better decision-making and monitoring your retirement portfolio.
3. Tax Efficiency
With mutual funds, especially if held long term, you benefit from tax-efficient withdrawals. Long-term capital gains (LTCG) are taxed favorably, with gains above Rs. 1.25 lakh taxed at 12.5%. Compared to annuity income, this is a more tax-efficient way to manage retirement income.

Other Retirement Planning Considerations
1. Diversify Investments
Instead of locking all your retirement savings into one plan, consider diversifying into multiple instruments like mutual funds, hybrid funds, or even debt funds for stability. This diversification will help reduce risk and offer you better control over your retirement corpus.

2. Review Your Asset Allocation
At your age of 54, you’re approaching retirement, but still have time to grow your investments. Ensure that your portfolio is well-balanced between equity (for growth) and debt (for safety). Too much exposure to conservative products like LIC Pension Plus may limit your corpus growth.

3. Consider Inflation
Pension plans often fail to keep pace with inflation. What seems like a good monthly pension today might not be enough 10 years into your retirement. Equities and growth-oriented mutual funds are better at helping your retirement savings outpace inflation.

Final Insights
The LIC Pension Plus Plan offers some security, but it lacks flexibility and growth potential. While it provides a safe route for those who are risk-averse, it may not be the best way to maximize your retirement corpus.

Here’s what you can consider:

Keep the LIC Pension Plus if you prefer security and a guaranteed annuity. However, balance it with growth-oriented investments like mutual funds for higher returns.

Consider redeeming or switching a part of your portfolio into actively managed equity funds or hybrid funds for more balanced, long-term growth.

Consult a Certified Financial Planner to guide you through these decisions, helping you adjust your portfolio to ensure maximum returns, liquidity, and flexibility for your retirement.

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