need advice on financial planning

POSTED BY Srinivasan Jambunathan ON July 10, 2012 12:19 pm COMMENTS (18)

Dear Forum members,

Look forward to your advice on my financial planning. Excuse me for the long post. I am aged 37, married with two kids aged 4 and 9 and earning approx. 12 Lakhs per annum.

My current Investments include

1. LIC policy – Annual premium Rs. 10000, SA – 1 Lakh maturity 2019 (13 premiums paid already)

2. LIC Jeevan Anand – Annual Premium Rs. 26000, SA – 5 Lakhs, maturity 2024 (9 premiums paid already)

3. Post office MIS investements 6.5 Lakhs invested in the name of my wife and child, maturing end of 2015.

4. FDs for 15.5 Lakhs maturing by end of this year.

5. ICICI Pension plan – Annual premium of Rs. 10000 maturing 2031, (8 premiums paid)- Pure accumulation mode, No Sum Assured.

6. Smartkid Child plan – Annual premium of Rs. 30000 maturing 2025 (7 premiums paid)

I have taken a home loan of close to 15 Lakhs and paying close to 20K EMI for the next 12 – 13 yrs. I have been following the posts and blogs of Jago Investor team for a few days now and this has been a real eye opener for me. Based on this, I have already taken steps for taking up a term plan for about 1 crore, as part of my financial planning. I also want to take to following actions for which I need advice.

1. Make my LIC policies as Paid-up.

2. Not sure on what action to take on my ICICI policies

Option 1- Should I close them or do I leave these as it is without paying any future premiums?

Option 2- If I close them, I calculated that I will get back the amount I invested with Zero profit.Since this is a long time investment (atleast 7 – 8yrs), I am prepared to invest them in a any alternate manner, so that these yield a good return later.

But I need suggestions on what option I should take?

3. Please suggest as to where I can invest my FD’s for approx. 5 Lakhs. Again I am looking at a time frame of atleast 7 years.

4. Additionally, if I have to invest Rs. 10000 per month for long term (5 – 7 yrs) what is the best mode to go about this?

Thankyou.
Srinivasan

18 replies on this article “need advice on financial planning”

  1. Dear Mr. Srinivasan,

    Thank you for the faith you’ve shown in ICICI Prudential Life Insurance.

    It looks like you’ve received some good advice here from Ashal. In general, it would not be a good idea for someone who has already paid 7-8 premiums to surrender their ICICI Prudential Pension Plan and the Smartkid Child Plan, as they have already borne the upfront charges.

    Also, you may not need the guaranteed NAV plan. We’re not allowed by IRDA to give specific advice, however, we can arrange for qualified advisor to speak to you and advice you after understanding your financial situation and objectives. Please assist us your contact/ policy details if you are interested.

    Warm regards,
    Life Insurance Help
    ICICI Prudential Life Insurance

    1. srinivasan j says:

      Dear Ashal / Rajesh and other group members,

      I met the Financial consultant / agent and these are his inputs against the various insurance policies that I am currently holding:

      1. Regarding my ICICI Pension Plan – he believes I should not continue with my ICICI pension plan for which I am paying a premium of Rs. 10000 per annum. His reasoning is, when the plan was introduced, it was eligible for additional tax rebate under 80ccc. However now this is not applicable anymore and hence not very useful to me. Also, he asked me not to surrender this plan, since the maturity amount will attract tax and I will be losing out on this, if I withdraw it and close the plan. He asked me to leave this as it is without putting any more premiums into this. Is this reasonable or is there a better option? Please advice…

      2. Regarding my ICICI Smartkid ULIP Plan – he belives even though this is a good product, the plan that I currently hold does not have any riders like Income Benefit rider etc. This he feels to be very essential without which he feels its like any ordinary ULIP plan. He suggests me to keep this plan active without putting any more premiums (Rs. 30,000 per annum) into it. He instead suggested me to take a Smartkid Endownment plan in the name of my child, with the rider (Income Benefit rider). As per him, this option makes more sense than continuing with my existing plan. I also told him that I am about to have a term plan close to 1 cr. He agreed that even though this was a good step, however it would be financially prudent to have continuous small returns instead of one lumpsum amount that could be misued. Please suggest if I am being guided right.Appreciate any advice.

      3. Finally, he is suggesting me to still go in for the Guaranteed Returns NAV plan. He asked me to use my FDs that will be maturing shortly to take up a investment of 1 Lakh per annum into this plan for the next 5 yrs. He again told me that ICICI’s portfolio for investment in this plan is equity based and the NAV variation (fluctuation) over the last year proves that they invest in equity not debt. Frankly, I am / was not in a position to analyze this point. Moreover he categorized this investment as a “strategic investment” and argued that the returns from this product is “Tax free”. I am still not fully convinced by this based on the advice I hear from our forum members. I would love to hear further on this, to help me take a better decision.

      Thanks again for all your inputs.
      Srinivasan

      1. Dear Srinivasan, You said the new Smartkid plan is endowment policy. Now can you tell me which one may provide better return to your adviser, in terms of commission. There is no need to earn any return for you after all you are going to charity your hard earned money.

        Well it does not matter that you ‘ll earn any benefits/return at the end.

        Please accept all the advice of that agent & let him earn handsomely from your prem.

        After 3-4 years, we ‘ll wait for another round of your crying for not getting any return from your money.

        Sorry in advance if you feel my post is too harsh or it’s tone is too much in your face kind.

        I want to help you from the core of my heart but it seems you do not want to help yourself. May God save you.

        Can you now figure out, what I want you to do?

        Thanks

        Ashal

        1. Dear srinivasan, So my guess is – some times stick (harsh tone) works better than soft words. Now it seems the thing is working for you. It’s not the question of persuading for long, frankly speaking, from your replies (actually queries) I was in the impression that you are showing interest to that agent’s advice & going to repeat the mistake.

          Please come here again, in case you do have any doubt.

          Thanks

          Ashal

      2. Ramesh says:

        Simplify things as much as possible.

        Do not go with any more of your front-loaded plans.

        1. A pension plan is for retirement purpose and NOT for tax-saving. If it is not able to get the tax benefits, you need to consider, whether it is a good investment vehicle or not. The tax benefits can be availed from other instruments.

        2. What will the Income benefit rider do in a child plan? Really dumb advice. Just plain selling advice.

        3. Download the appropriate brochure of that plan (very easy to do), and read page 6 which describes how NAV plans work. They have 3 NAV plans, with mixed equity-debt ratios (ranges 0-100%) in the first 7 years of the plan and then it most likely becomes a pure debt option. You do not invest in these plans. Period.

        Again, keep things simple.

        Further road-
        1. Take a proper term insurance. No more ulip,pension plan, etc.
        2. Invest in a mix of equity and debt funds, as per your requirements.
        3. Keep learning and investing.

        Ramesh

        1. Dear Ramesh, thanks for conveying the same thing in a polite & soft tone.

          Thanks

          Ashal

          1. srinivasan j says:

            Dear Ashal & Ramesh,

            Thanks again for all your inputs.

            Dear Ashal: Sorry if I have pursued with my questions for too long. I believe your advice will really help me. I will take all your suggestions and act accordingly :-))

            Regards,
            Srinivasan

  2. Dear Srinivasan, Here is my initial input.

    1. Do not surrender that 10K LIC policy as it’s near to maturity & if you opt to surrender, remaining time frame is not much to invest else where & cover your losses.

    2. Jeevan Anand policy – surrender immediately. Invest the surrender amount as lump sum investment in your smart kid policy. Use the saved prem. to increase your pension plan prem. from current 10K to 36K (10K+26K).

    3. Invest 5L Rs. from FDs into Quantum liquid fund & opt for a weekly STP of 10K Rs. Within a year full 5L Rs. ‘ll be invested.

    4. Use that 10K extra amount to top up your home loan.

    Thanks

    Ashal

    1. srinivasan j says:

      Dear Ashal,

      Appreciate your advice. I have further questions on your suggestion:

      1. Shouldn’t I make my Jeevan Anand policy as Paid up instead of surrender? Could you please help me understand your reasoning?

      2. You also suggested to continue with the ICICI Pension plan (increasing the premium) and Smartkid ICICI policy. Do you know from experience if these are good policies to hold on to?

      3. I got a call from ICICI and they adviced me to keep this active (not surrender this) but and open two new policies – Guaranteed NAV plan and ICICI Pru LifeStage Wealth II
      They asked me to put my existing premiums of ICICI plans into these new plans.

      I am convinced that I will not go for the Guaranteed NAV plan based on the knowledge I gained from the articles and posts in Jago Investor. However I am also confused on the ICICI Pru LifeStage Wealth II. Do you have any suggestions?

      Once again, sincerely appreciate your inputs.

      Thanks,
      Srinivasan

      1. Dear Srinivasan, a paid up value ‘ll be assigned to your policy in case of Jeevan Anand but it ‘ll be given to you in 2024 only & in between no earning ‘ll be there on this paid up value. On the other hand, if you opt to surrender, the surrender value ‘ll be lower than the paid up value, but you have around 12Ys time to cover your losses & earning some positive returns too.

        The high up front charges from Pension plan as well as smart kid are over & now the policies are running on very low charges. So it make sense to invest here. Also these policies are forcing you a discipline to follow in your investing. The increased prem. in your pension plan ‘ll help you to create a bigger corpus.

        Please do not accept those new policies from IPru people.

        Thanks

        Ashal

        1. srinivasan j says:

          Dear Ashal,

          Many thanks again for your inputs. I take your advice.

          However the ICICI representative called me today and was trying to convince me that the Smartkid plan is not going to yield high returns and its better to switch to the Guaranteed NAV plan.

          I reasoned out to him telling him that my high upfront charges in the Smartkid plan is over and it makes sense for to continue here. I further told him that, I am not interested in the Guranteed NAV plan because my premiums will be primarily invested in Debt based.

          He agreed that this was the case with HDFC and SBI, but not with an aggressive player like ICICI. He asked me to take a look at their NAV trend and told me that it follows the equity not Debt (could not really follow this???)

          He further told me that he will do a math and show me that why it would be advantageous for me to with the Guaranteed NAV plan and not stick with Child plan today. I am just curious to see as to what he comes up with …..

          Please advice if you have any further inputs. Thanks again….

          – Srinivasan

          1. Ramesh says:

            Which smartkid plan do you have? There is one which is Ulip, and the other which is a traditional plan.

            And wait for the representative to come up with whatever he has. Then show that to us.

          2. srinivasan j says:

            Dear Ramesh,

            I currently have the Smartkid Unit Linked RP II

            I will update the representative’s view.

            Thanks,
            Srinivasan

            1. Ramesh says:

              How have you set that plan? What allocation and in what funds?

              Plus, I differ from the view that you should top-up into this plan. From 2nd year onwards, there are zero allocation charges for normal premiums.

              But for top-ups you will incur a PAC of 2%. You should not waste that 2% in paying the company, is my thought.

              Ramesh

          3. Dear Srinivasan, The GTD. NAV product works on CPP – Continuous portfolio protection. No matter it’s from HDFC, SBI or ICICI. The moment NAV increases, by default a part of your fund ‘ll be redeemed from Eq. & invested in to Debt. In case there is a decline in Eq. portion, again the fund ‘ll be shifted to Debt to protect that downfall as the prev. NAV before the down fall was the higher one.

            So you can see irrespective of market situation, your money is going into Debt continuously.

            Please stay away from this Gtd. NAV Plan. Please do not listen to that agent for whatever math wizardy he puts before you.

            Thanks

            ashal

    2. srinivasan j says:

      Dear Ashal and Ramesh,

      I have refused the new policies suggested by the agent today. Thanks for your inputs.

      I also intend to surrender the two LIC plans I currently hold. The surrender value of

      LIC Jeevan Mitra comes to Rs. 85000 /-
      LIC Anand comes to Rs. 191000/-

      I would like to seek your suggestions on the following options.

      1.Long term investment (minimum 7 yrs) on this amount in some equity based investment?
      I am prepared to take short term losses on this, if that happens.

      2. Should I use this to Top up my Pension or Smart Kid plans. I believe this top-up will incur a PAC of 1%. Would it be prudent to put the entire amount into these plans.

      3. Should I use this towards repayment of my existing Home Loan. I currently have 15 Lakhs of Home Loan and paying a EMI of 20K per month. Currently at this rate, I will be paying this off in the next 13 yrs. Should I pay this off in the next 5 – 7 yrs using this Lumpsum amount from LIC. I am currently availing Rs. 1.5 Lakhs Tax benefit in Housing Loan Interest and this will be greatly reduced, if I do this.

      Any other suggestions? Please help me take an informed decision.

      Ashal had already suggested me a way to invest my FDs for Rs. 5 Lakhs (i.e.Invest 5L Rs. from FDs into Quantum liquid fund & opt for a weekly STP of 10K Rs).

      Thanks,
      Srinivasan

      1. Ramesh says:

        My views:

        1. How much loss can you take? If you really understand equity investments, and prepared to see the erosion of value upto 50%, go full on 100% in equities. Otherwise, correspondingly lower percentage.

        Understand the concept of Myopic Short-term loss. A virtual loss of money for few months is ok in equities, provided you have chosen good diversified stock portfolio (MF or MFs). Giving it a reasonable amount of time will mostly get you back up.
        Eg, if you had invested at the top (sensex 21k) in Jan 2008 in HDFC Top 200, the sensex got more than halved (the fund got halved) and on the rebound, when the sensex was around 17k, the fund managed to crawl back to Jan 2008 levels and nearly tripled from the bottom, when sensex got to previous highs. Moral- time is the best factor. The only problem is that the time is very variable and can extend from 3-6-9 years. Even short-term is not short sometimes.

        2. Since you have options for investing without incurring PACs, it is better not to. so, NO.

        3. In my opinion, never repay a house loan. Let the bank wait for its principal. You have already paid most of the total interest over the entire 20 year period in the first 7 years. Why would you think about paying the bank the principal faster? Calculate the principal left and compare that with the original amount of loan principal.

        Instead, invest that money into building or increasing your asset which you can use in your needs.
        Prepayment is only important if you are into a debt trap, and in case that happens to you in future, a proper asset will be even more important and helpful.

        I am not even thinking about the tax benefit, which is actually an added plus for you.

        Always think and analyse things before doing. Not after.

        Analyse your asset allocation pattern, and accordingly invest into the corresponding assets. Simplify things.

        I differ from the view of FD –> Liquid —STP-> equity.
        In my view, FD and liquid are debt, while equity fund is equity. So debt –> debt >> equity is not a great idea. Instead, analyse your asset allocation target and put money in debt or equity in the correct proportions. If you are less weighted in equity (as you are in this case) and you want to put money in equity, then you should do that directly as a lumpsum. Anyways, equities are not for a short term, so how does that matter if you have bought in single chunk or in 12 chunks with a difference of 5-10%, if flat. What if market rises to say double in next 1 year, you will get less units. Vice versa if the market halves, you will get more money. Problem remains that you (or me or anybody else) do not know how the market will behave in future.

        Think about these points, write down your reasons and then Action.

        Ramesh

      2. Dear Srinivasan, The combined surrender amount from the 2 policies ‘ll be around 2.75L Rs. I’m agree with dear Ramesh on the point that you should think a lot before act. Now what to do is purely a personal choice. Me or dear Ramesh or any other one can only provide you the guidance but you w’d have to walk that path.

        Regarding the home loan repayment thing, what dear Ramesh had told is a pure financial answer. It’s up to you to go for that or if you feel some what emotional for running a huge home loan, you may go for repayment.

        My personal take ‘ll be to go for all Eq. for next 12Y i.e. till Jeevan anand’s maturity time to cover your losses & to earn positive returns.

        Thanks

        Ashal

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