Investment Plans

Hi,

I want to invest 15 Lacs for a period of 5 years.My salary will increase over time and thus I can pay higher premimums gradually.

Where do I invest to get maximum returns ??

Term Insurance or Mutual Funds

Here is my Financial Plans

20 * 12 for 1 th year
25 * 12 for 2 th year
30 * 12 for 3 th year
35* 12 for 4 th year
40 * 12 for 5 th year

Thanks in Advance

Lijo

It's good to invest money for your future plans and specially to an insurance plan that will keep you secured through out,even when you aren't earning.The best thing you should be doing is to be catching up with a financial advisor and seeking his advice to invest safely so that you wouldn't be repenting later.

As for mutual funds they pay high dividends.But always remember "Mutual Fund Investments are subject to Market Risk,One has to read the offer document carefully before investing.

If you need security insurance is the best option and if you need quick and fast returns then pitch in for a mutual fund.

If the person is young, he should definitely take some extra risk to earn that extra return from equity related insturments, mutual funds(preferably ELSS) or direct equity investments. As time passes by he can reduce the exposure to equity.

Insurance is not an investment vehicle. Kindly understand that. Even though all insurance companies peddle one or the other schemes as investment instrument with the catch word "Safety" attached to it. Do you think anything is safe in this world? Is safety the ultimate thing in this world? If you dont risk a little, its not worth living itself. All our ancestors took more than that "little extra risk". they did not have any insurance policies then. that is why we are here. buy a pure risk coverage instrument, like a term policy with a high coverage which generally comes at a reasonable premium which one should treat as an expense. Dont you think one can throw away Rs.20k a year and forget it as an expense for entertainment or like any others necessary expense.

Nobody can offer safety, so its better understand risk and learn manage risk. an investor who does not want risk, should rather put his money in a pot and bury it under the ground where he stays. every one should be responsible for his money.

my suggestion is to Lijo is that he should invest for growth. in an ELSS of any MF you get tax benefits, and reasonably better growth than any insurance or fixed income scheme. I do not know much about your knowledge on equity, so i presume that you are a novice in that.

I have been advised that Metlife Smart Plus is an ideal investment from the angles of insurance, high returns and tax savings. May I have the views of learned friends please. Thanks in advance.

Hi,

This seems to be Unit Linked Insurance Plan. While considering any ULIP, please ensure following:

1. What are premium allocation charges - These are charges first deducted from your premium and then balance amount is invested. It varies from 2%-60%. If PAC are 20%, out of your premium of 1lac, only 80,000 would be invested. (Practically it takes more than 25% ROI to cover your cost)

2. What are Policy administration charges of the plan you are investing in. These are normally deducted as "cancellation of units" from your holding. Higher Policy administration charges = Higher Units deducted from Holding

3. What are Fund Charges. These are normally adjusted in NAV. Higher Fund Charges = Lesser NAV.

4. As per Insurance Regulator and Development Authority, No ULIP can guarantee return on investments (beacuse your principal amount is also at stake).

5. Also, as per IRDA, no insurance company can provide benefit illustraion with return more than 10% p.a.

6. What are the surrender charges if you wish to withdraw in interim. Practically, there is hardly any benefit if you surrender before 8-9 years.

7. What are the mortality charges - These are the charges for your insurance cover and varies as per your age. These are also generally deducted from your holding units. Higher Mortality Charges = Higher Units Deducted from Holding.

8. What is Death Benefit - Whether it is either sum assured or fund value, whichever is higher? It is advisable to invest in such plans which have SA + Fund Value as death benefit, beacuse you are paying mortality charges for insurance cover.

9. What are the charges for Rider Benefits - These are the charges for additional benefits, like accident, disability, etc for which additional charges are deducted as "cancellation of units" from your holding. Higher Mortality Charges = Higher Units Deducted from Holding.

I do not intend to discourage you from investing in Metlife Smart Plus. But have you considered combination of Term Plan + Mutual Funds. i.e. Taking a term plan which is pure insurance cover at very low premiums with return of premium on maturity and remaining big chunk of your money to be invested in mutual fund (risk is same in both MF and ULIP).

Benefits of this combination:

By investing in Mututal Funds you can save your taxes as well as premium allocation charges that are deducted upfront in ULIP. Also, you can save your monthly charges for Policy Administration and Fund Management. There are no surrender charges incase of Mututal Fund, which one has to pay for ULIP.

In addition to that, Term plans also come with limited premium payment options. For Mututal Funds you can either buy at your convinience or go for SIP.

Besides above, you also need to ensure that you have proper insurance cover for the support of surviving family.

Suppose your annual expenses are 2,50,000 in family of 5 members and you are the only earning member. You need insurance to protect your family from financial crisis in case of your untimely death.

Assuming family does not have Fixed Income investments, you would need insurance cover of atleast 20lacs and investment (MF) of such an amount that it gives you sufficient funds on maturity to meet your childrens education and marriage expenses.

I assume above information would be helpful for your to plan your insurance, investment and tax benefits.

I am a Financial Consultant by profession and also insurance consultant for Bajaj Allianz. Should you need any help to clear your doubts further, please let me know.

Regards