Money Matters

  • Ifthikar Bashir
  • Publish Date: Feb 13 2018 2:19AM
  • |
  • Updated Date: Feb 13 2018 2:19AM
Money Matters

I have invested in Reliance Tax Saver (ELSS) in SIP form. I want to switch to Aditya Birla Tax Relief 96’ Fund. Is there a way to stop further SIP in my existing ELSS and start a new one? 

Arshad Khan, Baghat Srinagar

 

You can stop the further SIP contributions in your existing ELSS if you wish to. In Equity Linked Savings Scheme (ELSS), each Systematic Investment Plan (SIP) instalment has a mandatory lock-in period of three years. In this lock-in period you do not have the option to exit or switch from one fund to another.

 

 

I purchased SBI eWealth ULIP in March 2015. The premium for this is Rs 2,500 per month. Should I surrender this plan or continue with it? 

Musa via email

 

SBI eWealth is a Unit Linked Insurance. Ideally, insurance-cum-investment plans are not recommended as they are costly and offer a sub-optimal combination of insurance and investment. If you surrender it before completing 5 years, the fund value will be moved to a discontinued fund. This will be paid out to you after the 5-year lock-in period and after deducting the applicable discontinuation charges. The fund value will depend on the NAV of the fund as on the date of surrender. To get the exact amount of surrender value, you can contact the insurer.

Though you will incur losses, we’ll still advise you to surrender your policy and take back the fund value after the expiry of the lock-in period. Further, buy a good term insurance plan with an adequate insurance cover and invest the money you would have otherwise paid as future premiums on your ULIP in a couple of good diversified equity mutual funds. This combination (term insurance and equity funds) will cover your insurance and investment needs in a far better way than a ULIP could.

 

 

I am a Private sector employee and had purchased a Unit-Linked Pension Plan in 2008 for a ten year term. I paid 5 annual premiums amounting to a total of Rs 15 lakhs. The policy is in paid up status now and matures in April 2018. I am not interested in pension and am keenly considering surrendering the policy prior to maturity. Current fund value is approximately 23 lakhs. Please advise if the option to surrender is prudent now. 

Sheeba Nissar via email

 

Unit Linked Pension Plans (ULPP) are pension schemes with inbuilt insurance. Your ULPP has given decent returns. However, on maturity of such pension plans, you can withdraw 1/3rd of the maturity amount as a tax free lump sum and the balance 2/3rd has to be necessarily converted into an annuity (Pension). The annuity option, while guaranteeing income at a fixed level, offers low returns, is not tax-efficient and locks up your money. As you are not keen on a pension anyway, it will be wise to surrender the plan now rather than wait till maturity.

Since you have completed the lock in period on your ULPP, the surrender value should be the same as the prevailing fund value. You may contact your insurer and find out if there is any specific clause for surrendering your ULPP before the vesting age (maturity).

 

 

I am a government employee having two kids aged 5 and 7 years. Considering the 3 year lock-in, should I invest through SIP or one-time investment in ELSS? 

Amitpal Singh, Rangreth Srinagar

 

ELSS (Equity Linked Saving Schemes) are an excellent way to grow your money and save tax at the same time. Like any other equity mutual fund, the best way to invest in ELSS is through the SIP mode. You should plan ahead and spread your investments throughout the year to reduce the risk of entering the market at a wrong time. If you invest a large sum at one go, you could end up catching a high point of the equity markets. If the markets fall sharply thereafter, a substantial portion of the value of your money can get eroded in the short-term. To save yourself from the stress this may induce, you should always opt for SIP to invest in equity.

Tax saving is just one aspect of ELSS investments; wealth creation should also be an equally important objective. The key to equity investment is to remain invested for a sufficiently long time horizon of at least 5-7 years.

 

 

I need a term cover of Rs 1 crore. Instead of a single term plan, should I buy 4 of them of Rs 25 lakh each from different insurance providers like HDFC,SBI, PNB Metlife & ICICI Prudential?

Zameer Hussain, Hawal Srinagar

 

Many individuals buy more than one insurance plan, especially while buying a large term cover, to spread their insurance across more than one company. But splitting across four may lead to over-diversification. It can make the claim process cumbersome, should a claim arise. Besides, it may also work out to be more expensive. Therefore, in my opinion, splitting across two insurance companies should be sufficient.