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'I strongly prefer ELSS over ULIP'

May 16, 2008 10:24 IST
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Do you think equity linked saving schemes, ELSS, are a better option than unit linked insurance plans, ULIPs? What are the pros and cons of investing in both? Which scheme gives better returns in the long term?

How do you generate wealth by investing in mutual funds? Should you invest in value-oriented or diversified mutual funds?

In a chat with Get Ahead readers on May 14, financial planning expert Vetapalem Sridhar answered these and several other queries related to mutual fund investments, financial planning and how to achieve financial freedom for you and your family.

For those of you who missed the chat, here is the transcript.

Part I: Young now and want to retire at 50? Here's how

Ganesh asked, Hello Sridhar, I wanted to invest 20K per month. I am planning it by 15K in HDFC Young Star plus (ULIP) and 5K in Sundaram BNP Midcap Select. I am doing this for long term (more than 5 years). So is it correct approach as I don't have any personal insurance? Also whether do the ULIP also give similar return as compared to Mutual Funds in longer run? Thanks.

Vetapalem Sridhar answers, I think u need to re-look at ur plan. In the ULIP u should continue to invest for 10-15 yrs to really benefit from it. U should not stop after 3 or 5 yrs. A 15K p.m. investment over a long horizon of 10-15 yrs may grow into a larger size than required for child needs. So u may consider to reduce the mthly amt. It does however make sense to invest more amt of money into MFs. Fund choice can be better. U should look at funds like HDFC Growth, Reliance Vision, Sundaram Select Focus, Sundaram SMILE, JM Emerging Leaders Fund, SBI Midcap etc......

Sonu Krishnan asked, Hi Sridhar, If I invest Rs.5L per year in monthly SIP payments, how much would be my estimated return at end of 3 years?

Vetapalem Sridhar answers, I think around 19L should be a reasonable expectation.

debashree asked, hi sridhar, my current income is 1.5L . I hv nt started investing . Since what i earn is just a peanut. I do nt have any saving. Still should i go for investments? If so what should be it?

Vetapalem Sridhar answers, It does not matter how much amt u invest initially. What is important is ur attitude towards saving and investing. I think that u should start a Rs 500 SIP into a fund like HDFC Growth with a 5 yrs horizon. Even if u hv less resources to invest u should initially focus more on learning more about investments.

ankur asked, Hi Sridhar, Is it a good idea to invest in ULIPS? I strongly prefer ELSS over ULIP. Also, for insurance one can go for pure term cover. But many agents and friends say ELSS are not good and ULIP are ideal for young people like me. Pl advise.

Vetapalem Sridhar answers, If an insurance advisor is saying that ULIP is better than ELSS, u should understand why. If ur friends r telling u this, then it is mostly because they have invested in a ULIP (it is human nature). To know whether they r really competent to say which is better, ask them to tell u what r the various charges (premuim allocation charge, mortality charge, fund mgmt charge, mthly charges, policy surrender charges in case of early withdrawal of money) in a ULIP and exactly how much charges r cut under each head. It does make sense to go for a combo of ELSS and TERM Plan, as the chances of going wrong is very small. {In very unique cases ULIPs MAY work out as a cheaper option to cover for Pure risk of life}.

ram asked, Hello Sridhar, I have a Reliance Vision Fund which is an year old (valued 25,000). As we know that for long term capital gains we dont have to pay any tax.. Now If I go for an additional purchase for the same Folio Number, say some 10000/- rupees and sell the MF after say 3 months, will I be taxed for the whole amount (35,000) or taxed only for a sum of 10,000..? Please clarify me with this.. Thank you..

Vetapalem Sridhar answers, Calculation will be done on First In First Out basis in such a case. All units that u have sold after 1 yrs will not attract Tax. But those units sold before the end of 1 yrs will attract STCG tax.

Arindam asked, Could you kindly tell me some mutual funds who are known as " Value oriented ". What's the basic differences between this type with normal diversified funds ?

Vetapalem Sridhar answers, Some examples r Templeton India Growth Fund, SBI Contra, Kotak Contra, etc....There r some other funds which initially had started as Value oriented Funds but currently follow the growth philosophy.

viveksharma95 asked, Why are you encouraging everybody to invest in equities? Please ask all first timers to invest in debt and create a cushion and then only switch to equities. Aren't you misguiding in the name of financial planning?

Vetapalem Sridhar answers, Dear Vivek, the fundamental basis of sound Financial Planning is an appropriate Asset Allocation Plan. Equity plays a role as important as debt in a person's life. India as a country is extremely under-invested into equities. Plz go thro the following link to understand more about the need for asset allocation: Asset Allocation - Secret to Financial Freedom. A choice of investment is dependent on individual circumstances. Having said that to invest into equities a person should hv a 5-7 yrs horizon.

MS asked, Hi again my mom wants to invest in MFs but she doesn't hv a PAN, is there a limit with investment below which PAN is not required?? Also, she is interested in MIPs, which one will you suggest?

Vetapalem Sridhar answers, A Pan is compulsory to invest into Mutual Funds. Do not be misled by the name Monthly Income Plan. A monthly income is not guaranteed thro such a investment in a MF. A return of 8-10% over the long run is a realistic return to expect from a MIP. Principal MIP and FT India MIP (Templeton) r gud ones.

SANDEEP asked, I have a belief that in coming months and foreseeing the present global economic positions alongwith the fragility of Indian economy and politics , it will be unwise to get invested in any shemes direct or indirectly ralated to the stock market.The situation is highly vulnerable ,with speculators at bay. What do you do in such a state of uncertainty?

Vetapalem Sridhar answers, The best strategy is to follow a suitable asset allocation plan. In the past too there hv been bad days like Scams, South East Asian crisis, Sept 11 during which the mkts went thro bad times. But inspite of this since 1979 to 2008 it has delivered an annualised return of 19%. Over the shorter run mkts r expected to remain volatile and maybe also see some bad times. But over the long run they will still continue to deliver reasonable return. That is the reason why to invest into equities u should have a 5-7 yrs horizon.

Praz asked, Hi Sridhar, I would like to know which is the best type of investment - Growth or Dividend? I have invested in Magnum Tax & Principal Tax. I personally have benefited more in Dividend. I am 26 years old without too much of immediate responsibilities in life.

Vetapalem Sridhar answers, Equity investment is supposed to be done with a long term horizon. After 1 yrs all gains r exempt from tax. Hence a growth option is more suitable than a dividend option. To know more read thro the link below. Dividend Vs Growth....

asim asked, Sir, I am 38 and due to bad financial planning, I bought two LIC policies (Money back for self, 10 years back) and Komal Jeevan for my daughter (3 years back, regarding my daughter's highter education/marriage). I want to get rid of these policies. Pl. advise me how can I do it so that the loss is minimum and suggest me an alternative for this.

Vetapalem Sridhar answers, Before u do this u should get an adequate TERM isurance. Once u have taken a TERM Insurance, u can make the policy paid up by submitting an application to LIC. U will not need to pay any further premiums. In future invest more wisely based on ur needs/objectives. The long term money should be invested into a Mutual Fund thro a monthly SIP.

KAT84 asked, Hi Sridhar, Can you state some mutual funds that have a low risk-low profit (~15%) schemes. I am planning to transfer the money i have kept in FD to mutual funds. The reason being the FD interest rate comes to a max of 9% and profits are taxable, whereas for mutual fund it is non taxable after 1 year.

Vetapalem Sridhar answers, When u invest into Mutual Funds u will have to bear the risk of the market. 1 yr is a short time to invest into equity MFs. But if u have a 5-7 yrs horizon u can make a reasonable return (15% is reasonable to expect). U can pick large cap funds like Reliance Vision, HDFC Growth, Franklin Bluechip which should serve ur purpose.

loot asked, I invest 5000 pm each month in ICICI prulife Lifetime policy. So far I have invested around 140000 and the current value is only 118000...a loss of 22000 in 2 yrs..locking period is 3 yrs which will get expired in March of 2009? What should I do? Shall i wait and keep investing till it get's unlocked or withdraw my money and reinvest somewhere else?

Vetapalem Sridhar answers, It is not a loss. The reason for the fund value to be less is the deduction of upfront premium allocation charges (which maybe around 18-25%) during the initial 2-3 yrs. Plz call up ur insurance advisor and tell him to explain to u in detail what r the charges that are being levied. If u do not get a satisfactory answer, u should approach the office of ICICI Life Insurance. To really benefit from a ULIP u should continue to pay for the entire tenure of the policy and not stop after paying only the 3 mandatory installments.

gayatri asked, is there any website where i can get comparative performence of mutual funds?

Vetapalem Sridhar answers, u can get comparative performance at rediff MONEYWIZ,, The official website for MFs is Here a comparative performance is not available.

Vetapalem Sridhar says, Friends, it was gud to answer some interesting questions! Will catch up soon......

Part I: Young now and want to retire at 50? Here's how

Vetapalem Sridhar is a financial planning specialist based in Pune. He can be reached at

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