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Are you afraid to buy ULIPs?

Last updated on: May 07, 2009 13:27 IST
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Is your friend or an insurance agent putting pressure on you to buy a unit linked insurance plan? Are you apprehensive about the charges involved in ULIPs? Should you look at ULIPs as a short-term invetment? How does an investment of same amount put in a ULIP and PPF compare over a period of time?

Given the current market lows is it a good time to invest in stock markets via mutual funds? How should you invest in tax-saving mutual funds now that the March 31 deadline is just two months away?

To answer these and various other money and invetsment related queries, financial planning expert Vetapalem Sridhar, hosted a chat with GA readers on May 6.

For those of you who missed the chat, here's the unedited transcript:


jeetu asked, I am working with NGO earning 23k i have just invested Rs. 3500/- in LIC and Tata AIG pension plan on monthly basis, home loan cost Rs. 6003, Personal Loan 4969/- can suggest me i want small amount for my son's future education please suggest what should i do

Vetapalem Sridhar answers,  at 2009-05-06 14:08:24Dear Jeetu, the first thing that u should do is get urself an adequate TERM Insurance cover. Do not invest in any more insurance based investment options. First focus on create some liquid resources in form of a Bank FD, etc. For ur child, initially start with a Rs.500 SIP in a Mutual Fund like HDFC Growth or Reliance Vision. This amt should be increased over time as ur savings potential increases.


abhay asked, i have bought a flat as an investment in kharghar, Navi mumbai as the prospects over there seems good. With the new international airport coming and government promoting lot of schemes in kharghar area. I bought the flat at around 2600....i want to sale the flat around 2013..what kind of rate can i expect..please let me know..genuine regards....Abhay

Vetapalem Sridhar answers, Hi Abhay, Kharghar is a gud place to own a property as an investment. However, it is difficult to predict with certainty wat will be the rates in Kharghar in 2013. The rates should definitely rise as and when the construction of the airport gets underway. Over a 4-5 yrs u should be able to make a decent return on ur investment.


Abhishek asked, Hi, I want to know which Term Insurance Plan is cheapest for amount of 30L Thanks,

Vetapalem Sridhar answers, Dear Abhishek, the answer would depend on ur age, tenure of the cover and ur health. Different companies would be competitive based on changes in the above criteria. U should get the quotes from various Insurance companies to find out. U can check with Religare, Reliance Term Plan, ICICI Pru Lifeguard WROP, Kotak Term Plan, SBI Shield, etc. Most insurance companies hv online premium calc on their respective websites thro which u can find out the cost of the TERM Insurance.


Abdul asked, Hello Sridhar, My monthly income is Rs. 50000/- out of which Rs. 18085/- goes for Home Loan & Rs. 15,000/- for House Expenditure where should i invest the rest of the money & how

Vetapalem Sridhar answers, Hi Abdul, u r able to save a healthy amt from ur earnings after all ur expenses. The first thing to do would be to get a TERM Insruance cover to take care of all liabilities and provide for ur dependants in case something happens to u. From ur savings, then build up a reserve fund into a bank FD to take care of emergencies or contingencies. Once this is done then channelise ur savings towards building long term wealth. A suitable mix of debt and equity (asset allocation) should be used to do this. For equity u may consider investing thro MFs via a SIP. Some of the funds that u can consider r HDFC Grwoth, Reliance Vision, DSPBR Top 100, Sundaram Select Focus, etc.


Sandeep asked, I and my wife work in software and are able to accumulate a surplus of 70k per month after all the expenses. I want to invest in mutual funds, tell me some good funds.

Vetapalem Sridhar answers, U can build a portf of 4-6 funds. Of this the core portf should consist of large cap funds like HDFC Growth, Reliance Equity Advantage Fund, Sundaram Select Focus, DSPBR Top 100, Franklin Bluechip, etc. Pick 3-4 of these. U can then add 1-2 midcap funds. Some of the midcap funds u can consider r Sundaram SMILE, SBI Midcap, Reliance Growth fund, etc. U may also add a contra fund fund like SBI Contra, Kotak Contra, etc.


raju asked, Hi, I have invested 5.5L in Mutual fund, during 20K in Bse, the value was 13L now it is 4.4L. what should I do ? can I hold or should I come out with booking losses. Invest somewhere...

Vetapalem Sridhar answers, Dear Raju, u hv now an experience which tells u that u can make gud money when mkts go up. Learn from it and remain invested. Over the long run in future the mkts would go up and cross 20K, and u would hv grown ur money generating reasonable returns.


prasanna asked, Gold rates are currently 1450 approx per gram, i was thinking every month i would buy one or two gram as thats how much i can afford. My monthly expense is 3k, liablity of 11k.My total income comes to around 20k. Would this be a suitable thing to do.

Vetapalem Sridhar answers, Hi Prasanna, in case u wish to hv physical gold, buying gold in this fashion is definitely a gud idea. In case it is for investment purposes, u can consider investing into a Gold ETF.


jacob asked, Do i get tax benefit in 5 year FD . Can i have the benefit from any of the bank

Vetapalem Sridhar answers, Dear Jacob, u can claim tax benefit u/s 80C upto 1L by investing in the specified 5 yr bank FD. It is best to invest into this FD in a Public Sector bank.


amit asked, i want to invest rs 5 k per month for daughter education , she is 4 year old now.pl suggest where and how much

Vetapalem Sridhar answers, Dear Amit, there is still around 12 yrs before u would need the money. This is a pretty long time and the investment option with potential to deliver best returns over this horizon is equities. u should consider doing a SIP into MFs for this purpose. Plz go thro the article where I hv dealt with this matter in depth. Link below. http://specials.rediff.com/getahead/2007/aug/07sli1.htm Investing for children A Slide Show, click NEXT to read thro.


sysadm asked, In current Economic scenario, Is it smart decision to buy home OR we should hold the decision for some period of time?

Vetapalem Sridhar answers, Hi! It is likely that during the coming 4-6 mths the property prices should bottom out. Difficult to pick the actual bottom. A lot of options r currently available at gud prices. If u like a property and the price is reasonable, u should go for it. Start looking from now onwards.


RITU asked, HI SHRIDHAR, IS IT RIGHT TIME TO INVEST IN EQUITYWHEN SENSEX IS 12K OR TO WAIT TILL IT GO BACK TO 10K FOR LONG TERM INVESTER

Vetapalem Sridhar answers, Hi Ritu, for a long term investor (7-10 yrs horizon) Sensex levels should not matter. U will make gud returns by investing at 10K or 12K of the index. Timing the mkts does not matter. It is very difficult to exactly predict how mkts will move. Hence it would be a wiser strategy to invest money regularly into the mkts. To take advantage, u can pump in some lumpsum investments whenever mkts go down.


aj asked, Sir, I work in pvt. co. drawing salary of 25000/ p.m. Is there any pension plan scheme? if yes, which one is best?

Vetapalem Sridhar answers, Hi! The new pension system has been launched by PRFDA in India. It is still in its intial stage. This in the long run would be one of the best options as a Pension Plan. U can read thro the official website for more info on this in the link below: http://pfrda.org.in/


vv asked, me and my husband work and we want to start saving for our retirement. we have savings of over 1 lk per month. how do we invest this so we can atleast have 5 cr when we retire. we are 32 yrs now and we will retire in next 20 yrs

Vetapalem Sridhar answers, Hi! If u invest 1L each mth and r able to grow it at 10%, then in around 17 yrs u should be able to accumulate around 5 Cr. However it maybe possible for u to retire earlier than 20 yrs by building a suitable asset allocation strategy. Plz read thro the following link which may guide u on a approach that u can take to achieve this. http://getahead.rediff.com/slide-show/2009/may/05/slide-show-1-eight-steps-to-financial-planning.htm The Financial Planning Process A Slide Show, click NEXT to read thro


Sumit asked, Hi Sridhar, I like to invest for 12-18 months, 1000 per month, than have to use that money. Besides Recurring Deposits what options do I have? Which Funds can i look at?

Vetapalem Sridhar answers, Hi Sumit, an RD is the best way to do this. Equities is not a suitable option for this purpose. U can consider a Liquid Fund as an alternative to a RD. Income funds too will not be suitable for such a horizon as they can be volatile based on interest rate movements.


som asked, Pl advise the safe debt based instruments for long term saving or pension funds investing in debt funds.

Vetapalem Sridhar answers, Dear Som, for debt invsetments, PPF is one of the safest place to invest money where u get a gud return. Ideally if the horizon is long enough (10-15 yrs), a mix of debt and equity is advised for generating optimal returns.


sunit asked, Hi, I am 37 yrs old with following asset allocation. Property 70L, Equity 20L, FD 17L, MF 2L, savings a/c 5L. Liability 10L as home loan.Do you find this proper? I have low to med risk appetite. Thanks

Vetapalem Sridhar answers, Hi Sunit, u seem to be doing gud. If the property is ur primary residence and u r staying there, it is not to be considered as part of ur investment portf. U have a gud mix of debt and equity.


sandeepmkt asked, i am planning for a 1st house and have been delaying this for 1 year now. Do you think it would be good to buy a 1st home in Bangalore at this moment? I am looking at 'A' grade builders to buy from

Vetapalem Sridhar answers, Hi Sandeep, it is a wise thing u hv done by waiting. U can start looking for properties now. It may make more sense to buy a ready property, unless u r very sure that the builder is financially sound and he will complete the property in time. In case of unfinished properties there is a risk that in case builder goes under, then u may not get possession of the property. Rates may bottom out over the coming 4-6 mths.


kushal asked, hello Sridhar, my father would be retiring in another 6-7 yrs and i want to do retirement planning for him. He has the insurance cover for him with LIC and has sizeable amount parked in bank fixed deposits. He doesnt want any investment in equity but is ok with mutual funds. Can you suggest any mutual funds or any another scheme where he can invest as part of retirement planning?

Vetapalem Sridhar answers, Hi Kushal, it is wise to put effort into planning. However ensure that ur dad is involved in this process and is completely aware of all happenings. Even post retirement a person should hv some exposure to equities to counter the effect of inflation. A gradual introduction and regular investing (SIP) should be the way to go forward in ur case. Stick with large cap funds like HDFC Top 200, Reliance Equity Advantge Fund, DSPBR Top 100, Franklin Bluechip, etc. Explain to ur dad tht in the short term the investments tend to be volatile, but over the long term they deliver reasonable return.


divya asked, what should be the optimal term insurane for 38 yrs perons. How do we calculate and what riders must be added

Vetapalem Sridhar answers, Insurance is to cover risk (in financial terms only). Hence if a person dies and there r people dependant on him/her (in financial terms) then they will be put into financial discomfort. Hence the role of insurance should be limited to the extent of this financial discomfort. It is not an easy task to put a figure to this financial discomort. It would include all existing liabilities and future living cost of dependants (minus current assets, future earning potential of any other earning member). Hence when current assets exceeds the liabilities and future living cost of dependants then the need for insurance no longer remains. Evaluation also needs to be done whether a non working member of the family can take up work and earn if the need arises in this estimation. U can calc the insurance reqd using spreadsheets.


RS asked, Dear Mr. sridhar, My friend is pressing me to take a ULIP policy. I am apprehensive about the policy as charges are high. If i invest 2000pm for 20 years in ULIP and PPF simultaneously, which one yeilds max returns. NAV of that ulip is currently at 17.00 What would be NAV after 20Years

Vetapalem Sridhar answers, Most people r sold financial products they do not need by known people (relatives, friends, etc). U can read thro the following link to know about certain such examples. http://www.rediff.com/getahead/2007/jul/25fin.htm Emotionally fooled into buying products. If u invest in a Equity option of a ULIP and pay the installments each mth till the end of 20 yrs, then it should definitely give u more returns than investing in a PPF a/c. However most ULIPs r sold as a 3 yrs investment option.


Ashu asked, I have money in cash that I want to invest in stocks. However I am waiting for right opportunity to invest. Till then where can I park that money to get decent returns with security. Please note that I do invest in stocks on regular basis but this is bulk amount that I have. But I don't want to invest it all together

Vetapalem Sridhar answers, Hi Ashu, a liquid fund (Mutual Fund) maybe a suitable option to park ur money.


nura asked, Hello Sir, I have invested in ULIPs which didn't give good returns. Should i continue or quit. One has completed 3 yrs and another is pension plan and i invested for 1 yr only. Please suggest

Vetapalem Sridhar answers, Dear Nura, continue to invest in the pension plan for the entire tenure and not just for 3 yrs. The returns r lower due to high upfront charges and fall in mkts (in case of equity ULIP). Over the long run as mkts rise u would make decent returns as ur current investments will go in at lower levels of the mkt.


vishwa asked, Hi, Good afternoon, Is it better to use surplus fund to pre-pay home loan principal or invest them (considering the current market conditions)

Vetapalem Sridhar answers, Hi Vishwa, investing the surplus is definitely a gud idea at this stage. This invested amt is always available for prepayment in case u wish to prepay. Reasons not to prepay r tht Interest rates r expected to come down over time and u can enjoy tax benefits on ur housing loan.


pat asked, I am 55 yrs old. After shuffling my assets by selling and buying a smaller house I am left with 40 lakhs post tax. I want to retire. How best to invest for a steady monthly income beating inflation at the same time. I will need 30000pm at todays cost.

Vetapalem Sridhar answers, U would need to grow ur money at a higher rate if u want it to last for ur lifetime. U will need to invest a sizeable amt into equities (around 25L) and the rest into debt to be able to sustain this money for a long time. Incase u do not wish to invest so much money into equities u will need to over time cut down on ur lifestyle and spend lesser money in future years.


joy asked, I am 57 retired with Rs.17000/-as monthly pension.Also have about Rs. 12000/- from other income sources.Can save about rs.12-15K pm.please advise my saving methodology.

Vetapalem Sridhar answers, Hi Joy, u seem to be doing well. Incase ur pension is able to take care of majority of ur expenses, then the rest of the assets that u own can be invested in a wiser way to ensure that they grow at a faster pace. U can keep a sizeable sum invested into safer investment options. Some allocation towards equity should be done to ensure that ur wealth grows at a higher rate. Alternatively u can do a SIP of majority of ur mthly savings into equity MFs.


rohitdalvi asked, is there any site which will guide me in my financial planning.

Vetapalem Sridhar answers, There r a number of sites tht can provide u with information and tools for basic planning. Financial Planning is a more comprehensive in nature than the tools provided and some specialised skills r required for the same. U can understand the Financial Planning process by going thro the link below. http://getahead.rediff.com/slide-show/2009/may/05/slide-show-1-eight-steps-to-financial-planning.htm The Financial Planning Process A Slide Show, click NEXT to read thro


KAMOL asked, Hello Sridhar, I want to invest 6L into EQ MF's. CAn I put the lumpsump or into lots of 50k/100k into 4-5 funds like Re visiion, HDFC GRWTH, DSPR TOP 100,SUNdram Select Focus? Thanks

Vetapalem Sridhar answers, Dear Komal, the fund choices r gud. It maybe a better idea to invest in lots of 50K spread over the next 3-4 mths.


ash asked, Hi Sri, i have about 3L in my hand and was wondering which would be the best possible option avaiable at this point of time with market still weak and FDs not giving great returns. Looking for 2-3 yrs horizon and for a return of around 12% is it possible?

Vetapalem Sridhar answers, Hi ash, ur return expectations r genuine and with a 2-3 yrs horizon it can be met. Investing The money in smaller chunks initially and the remaining in case mkts go around 10K maybe a gud strategy.


shammi asked, i m 48 years old i m thinking of retirment planning, i have ppf money of rs 1400000 and fdr of rs 100000. pls advise me as my daughter is going for further study after 2 years she is 20 years old and my son is 14 years. pls adviseme.

Vetapalem Sridhar answers, Dear Shammi, keep aside the funds for education in safer assets at this stage. Part of the money which u will definitely not touch till ur retirement should definitely allocated towards equities (via mutual funds maybe a better option).


comrade asked, hi Sridhar, can you suggest some criterion to pick MFs for investing as SIPs in today's market?

Vetapalem Sridhar answers, Hi, it is not possible to predict which funds will be the best performers in future. However there r certain basic parameters that u can evaluate to shortlist a MF. Some of them are Fund Mgmt team, fund philosophy, expenses structure, fund size, etc. To know more in detail plz read thro the following link: http://specials.rediff.com/getahead/2007/oct/12fund1.htm How to select a good mutual fund A Slide Show, click NEXT to read thro.


sachinc asked, Hi, I am working abroad, and am able to save approximately Rs 80K - 90K p.m. I would like to start investing in India asap. For starters, I'd like to invest approx Rs 40K p.m (med risk). Could you kindly advise me as to what investment strategy and sector (equities / real-estate / MFs etc) should I look at. Are there any special schemes for NRIs?

Vetapalem Sridhar answers, For NRIs, who have a long term horizon, both equities and real estate hv gud opportunities. However it maybe easier to invest into equities thro the MF route, as managing them is far easier. A lot of MFs now offer online buying and selling facility thereby enabling a NRI to manage them from abroad. Investing into a suitable portf of funds based on risk appetite and investment strategy can deliver gud returns over the long term.


Anant asked, I am a 27 year old, earning around 50k a month. I have a baby who is 3 months old, I wish to take a Child Plan for him to ensure his proper education. I also wish to make my portfolio, so that I can make investments to save tax, Life Insurance and Child Plan and also save some money in my bank account. Please guide me.

Vetapalem Sridhar answers, Dear Anant, taking a Child specific plan is not the most suitable option. First and foremost take up an adequate TERM Insurance cover. U can invest money each yr into a ELSS Mutual Fund scheme for tax benefits and in the process build a sizeable fund for ur child's future thro this investment option. Read thro the following link to know about investing for ur child: http://specials.rediff.com/getahead/2007/aug/07sli1.htm Investing for children A Slide Show, click NEXT to read thro.


Vetapalem Sridhar says, Thats all for now Friends! Will catch up soon......


Vetapalem Sridhar is a financial planning expert based in Pune. He can be reached at vetapalems@rediffmail.com
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