Which guaranteed plan is better

Ans: Hi Prasanna, life insurance protects your family in case of an unfortunate demise of the policy holder. In case of a premature death, while in case of annuity plans, it protects your income if you live longer than the expected term.

Ans: You are 42 years old and employed in the government sector.

Your wife is 35 years old and does not work.

Your son is 8 years old and has many years of schooling ahead.

You earn around Rs 9,50,000 per year.

You want to secure your family’s financial future.

You also want to invest smartly and ensure better returns.

About Term Insurance

Term insurance is a pure risk cover.

It does not give any return on maturity.

It only pays the death benefit to your nominee if you pass away during the term.

This amount can help your family live well.

It can cover their needs like schooling, marriage, and home.

No Returns from Term Insurance

Term insurance does not give any guaranteed return.

It is like renting an umbrella for rainy days.

When it does not rain, you return the umbrella.

So, you pay a premium for protection only.

Do not look at term insurance for guaranteed maximum return.

Don’t Mix Insurance and Investment

Mixing insurance with investment is not wise.

Term insurance is best for protection.

If you want returns, look at mutual funds or other investment plans.

Avoid plans like endowment, ULIP, or traditional policies.

They give low returns and have high costs.

How to Choose the Best Term Plan

Look at the claim settlement ratio of the insurer.

It shows how many claims are paid versus claims received.

Higher ratio means better trust.

Choose an insurer with at least 97-98% claim settlement ratio.

Check the Financial Strength of Insurer

Look at the solvency ratio of the company.

This ratio shows the insurer’s ability to pay claims.

IRDAI requires minimum solvency ratio of 1.5.

Choose an insurer with a higher ratio for better safety.

Look at the Features of the Policy

Check the policy term you need.

Many insurers offer term up to age 70-80.

See if you want increasing cover or fixed cover.

Fixed cover is usually cheaper and easy to understand.

Check Premium Payment Options

Some insurers offer single, regular, or limited payment options.

For you, regular premium payment is better.

It will be easy on your cash flow.

Check for Additional Riders

Riders are like extra covers on top of basic term plan.

Examples are accidental death rider or critical illness rider.

Riders can give extra money if accident or illness happens.

They are cheaper when added to term plans than buying separately.

Check for Ease of Buying and Claiming

Check if the insurer has simple online buying process.

Check if claim process is fast and clear.

Some insurers promise claim settlement within 24 hours.

Review the Premium Affordability

Premium must be easy for you to pay every year.

Don’t take very high cover that burdens your budget.

Balance between cover needed and premium you can pay.

About Your Current Income

You earn around Rs 9,50,000 per year.

Your premium should not exceed 2-3% of income.

For Rs 1 crore cover, premium will be low, around Rs 12,000-15,000 yearly.

Evaluate the Insurer’s Track Record

Look at how long the insurer has been in business.

Older companies have more experience and stable systems.

It is better to go with trusted names.

Your Family’s Financial Future

If you pass away, your wife and son will depend on this money.

It should be enough for their daily needs and future goals.

For your son’s education and marriage, Rs 1 crore can give a good start.

Tax Benefits of Term Insurance

Premium you pay gets tax benefit under section 80C.

This helps you save up to Rs 1,50,000 in taxes.

The death benefit received by family is fully tax-free under section 10(10D).

What Should You Do for Investments?

Since term insurance does not give returns, plan separate investments.

You can invest in mutual funds for long-term goals.

Mutual funds give better growth than traditional insurance plans.

Actively Managed Mutual Funds – A Better Choice

Actively managed mutual funds are run by expert fund managers.

They pick good stocks and manage risks better.

These funds can beat the market and give better returns.

They are better than index funds which only copy the market.

Index funds don’t change if market falls. They have no active hand-holding.

Your investment will just follow the index, no protection in down market.

In actively managed funds, managers keep watch on the market.

They adjust the portfolio for better performance.

So, for long-term goals like your son’s education or retirement, actively managed funds are best.

Why Not Direct Funds?

Direct mutual funds have lower expense ratio.

But they need your own expertise to track, review, and switch if needed.

Many investors don’t have time or knowledge to track funds.

Wrong fund selection can hurt returns.

Regular plans through a Mutual Fund Distributor with Certified Financial Planner help you.

You get expert help to choose best funds for your needs.

CFP can help you adjust funds when needed to stay on track.

What to Avoid

Don’t mix insurance and investment.

Avoid endowment and ULIP plans as they give low returns and high costs.

Don’t put money in schemes that promise guaranteed returns along with insurance. These are usually low yield and inflexible.

Building a Strong Financial Plan

You should have an emergency fund equal to 6-12 months of expenses.

This fund will help you manage sudden needs.

Keep it in a liquid fund or bank FD for safety.

Health Insurance for Family

You should take a separate health insurance for family.

This will help you cover medical costs without stress.

Health costs are rising fast, so health cover is a must.

Your Retirement Planning

Start investing in equity mutual funds for your retirement.

They give better growth in long term.

SIP is a good way to invest small amounts regularly.

You can increase SIP amount as income grows.

For Your Son’s Education

Start a separate SIP in equity mutual funds for your son’s education.

He is 8 years old. You have 10 years to save.

Equity funds will help you beat inflation.

Use a goal-based plan to track this investment.

Avoid Real Estate for Now

Real estate needs big money and has low liquidity.

It also has risks like legal disputes and low rental yield.

It is better to focus on mutual funds and other assets.

Protecting Your Family’s Future

Keep all insurance and investment documents in one file.

Tell your wife about where documents are kept.

Make a will to avoid future disputes.

Will makes sure money goes to right people easily.

Finally

Term insurance will give your family protection.

But do not expect returns from it.

For returns, invest separately in mutual funds.

Start SIPs for long term goals like son’s education and retirement.

Take health cover for family.

Keep an emergency fund for safety.

Review your plan every year with a Certified Financial Planner.

With small steps, you will create a strong financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Ans: You are thinking in the right direction.

You are looking for a Systematic Withdrawal Plan (SWP) to generate income. This means you are valuing stable income and disciplined investing. That’s very good.

Let us now evaluate this from a 360-degree perspective.

You have not mentioned your exact requirement. So this answer is framed with a wide approach. You can always customise it later.

? What is SWP?

– SWP means you invest a lump sum in a mutual fund.
– Then you withdraw a fixed amount every month.
– It gives you monthly income like a pension.
– You continue earning returns on the remaining investment.
– Your capital remains invested unless it gets depleted.

? When is SWP suitable?

– You need a regular income from your investments.
– You have a lump sum and want monthly cashflow.
– You are retired or nearing retirement.
– You want to plan regular cash outflow without emotional decisions.

? What should your SWP be based on?

– Time horizon of your goal.
– Expected returns from fund.
– Your income need per month.
– Inflation impact on your needs.
– Taxation of the fund.

? What type of mutual funds are good for SWP?

– Do not use pure equity funds. They are volatile.
– Use hybrid funds or balanced advantage funds.
– You may use debt funds if your horizon is short.
– For long-term SWP (8 years+), equity-oriented hybrid is better.
– For short-term SWP (less than 5 years), conservative hybrid is safer.
– Balanced advantage funds are flexible. They adjust equity and debt.

? What asset mix is ideal for SWP?

– 15–20% equity for stability and growth.
– 80–85% debt for regular income and safety.
– Don’t go for 100% debt unless time horizon is below 3 years.
– Equity cushion helps beat inflation over time.
– Avoid small-cap or mid-cap for SWP.

? How much can I withdraw monthly?

– If you withdraw 5–6% per year, corpus can last longer.
– Withdraw 0.5% per month (or lower if possible).
– Do not exceed 7% yearly withdrawal.
– If market is down, reduce SWP for few months.
– This helps protect principal from erosion.

? Should I choose dividend plan instead of SWP?

– No. Dividends are not guaranteed.
– Mutual fund can skip or reduce dividend.
– SWP gives fixed and predictable payout.
– It gives more control than dividend option.
– Choose growth plan + SWP route.

? What about tax on SWP?

– SWP is not fully taxed like FD interest.
– You pay tax only on capital gains portion.
– If held for more than 1 year (equity), it is LTCG.
– LTCG above Rs 1.25 lakh is taxed at 12.5%.
– STCG is taxed at 20%.
– In debt funds, gains are taxed as per slab.
– Overall, SWP is more tax-efficient than FD.

? Should I use direct funds or regular?

– Direct funds look cheaper due to low expense.
– But you lose professional guidance and monitoring.
– In direct, wrong selection can eat your capital.
– It is always better to go with a Certified Financial Planner through an MFD.
– They help review, rebalance, and plan tax smartly.
– Regular plan expense is worth the peace of mind.
– You also get behavioural guidance during market falls.

? Why avoid index funds for SWP?

– Index funds are passive. They blindly follow market.
– They do not protect downside during market crash.
– Actively managed funds are better in SWP.
– They offer dynamic allocation, risk control, and better returns in volatile phase.
– In SWP, principal protection is critical.
– So avoid index funds in such plans.

? Should I choose SWP from an existing fund or new fund?

– Use existing fund only if its objective fits.
– Don’t do SWP from aggressive equity fund.
– If existing fund is large cap, mid cap or sectoral, avoid SWP.
– Start new SWP from hybrid or balanced advantage fund.
– That way, SWP becomes more structured and stable.

? Can I change SWP amount later?

– Yes. You can increase or reduce amount anytime.
– But frequent changes can affect discipline.
– Plan SWP for at least one year at a stretch.
– Review every year with your Certified Financial Planner.
– Adjust if income need or market changes.

? What if I need SWP and also want growth?

– Then reduce withdrawal to 4–5% per year.
– Rest of the money remains invested and grows.
– Choose hybrid fund with some equity.
– This gives both monthly cash and long-term growth.

? What are the risks in SWP?

– If you withdraw too much, capital will reduce.
– If market crashes, equity portion may lose value.
– Debt fund risk can come from credit or interest rate.
– Inflation may reduce your buying power.
– Wrong fund selection can damage plan.
– Therefore, don’t DIY. Take help of CFP-backed MFD.

? How to plan SWP for gold purchase?

– You said you need Rs 30 lakhs worth gold in 2 years.
– Do not do SWP for this short goal.
– Use low-duration debt funds or fixed deposits.
– You can do STP from liquid to short-term debt.
– Gold goal should be invested in low-risk asset.
– Withdraw lump sum after 2 years. Not via SWP.

? How to link SWP with your actual goals?

– You want Rs 2 crore in 10 years.
– You want Rs 30 lakh gold in 2 years.
– First, park Rs 30 lakh for gold in a debt fund.
– Start SIP for Rs 2 crore goal in hybrid equity fund.
– Use SWP from debt fund for monthly income.
– SIP continues for growth. SWP manages income.
– Separate funds for separate goals.

? Can I do SWP from PMS or stocks?

– No. SWP is not suitable from PMS or stocks.
– They are volatile and not structured for payout.
– Mutual funds have structured SWP option.
– Stick to hybrid mutual funds. It is safer and reliable.

? Should I take SWP from multiple funds?

– Yes. You can split across 2–3 funds.
– Choose different AMC or strategy.
– This gives diversification.
– But don’t overdo. Too many funds confuse.
– Two hybrid funds are enough.

? How often should I review SWP?

– Do annual review.
– Check if fund is performing well.
– See if your capital is intact.
– If fund underperforms, change with help of CFP.
– If income need goes up, adjust wisely.

? Should I do monthly, quarterly or annual SWP?

– Monthly is best. Matches monthly expenses.
– Gives better cashflow control.
– Quarterly or annual suitable if you don’t need frequent money.
– Monthly gives comfort like pension.
– Choose monthly unless your expenses are not regular.

? Final Insights

– You are financially stable and aware. That’s rare and admirable.
– SWP is a smart way to convert capital into income.
– Use hybrid or balanced advantage funds.
– Avoid equity-only, index or direct funds for SWP.
– Keep equity limited and debt dominant.
– Use regular plan with CFP-guided MFD only.
– Plan separate funds for gold goal and retirement goal.
– SWP gives freedom with structure.
– With proper plan, you can meet both your goals with peace.

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