I am investing in LICJeevanSaralPolicy since December 2008 with a purpose of insurance, while expecting a return of about 8% after 10 years.It has been about 5.5 years.I recently discovered that this policy is returning a low interest of about 6% as in form of loyalty addition, which depends on company performance.Also,its addition starts after the completion of 10 years, thus,there is no return or addition in the portfolio till then. What should I do?

I want to exit from the policy while incurring least money loss or at a stage when there is proper return, but not more than 10 years. I think I should exit because there can be no loyalty addition till the completion of 10 years,thus, there shall be no returns.If I transfer it into an FD then also it will give good return.I can go for a life cover of any term plan. I started investing Rs. 5,104 per month since I was 22 years old.Please guide me if I should continue.

Life insurance is meant for accumulation of corpus for a long-term goal and it is not appropriate to compare it with liquid instruments like FD.Apart from getting loyalty additions at 10th year, the maturity proceeds are tax free; however, maturity proceeds of FD are taxable. Disciplined savings ensure accumulation of corpus for the desired goal without the fear of being utilized before your goal. Also, it ensures that the money is not churned and used elsewhere but for the desired goal, builds an asset right from day one and protects your dreams from an untoward event.

Death Benefit:

In case of death of the Life Insured, the nominee receives

- Sum Assured (i.e. 250 times the Monthly Premium)

- Return of premiums excluding extra/rider premium and first year premium

- Loyalty Addition(if any)

Maturity benefits of LIC Jeevan Saral:
- At the maturity of the Jeevan Saral policy, the insured will get the Maturity Sum Assured (depending on the age of entry and policy term) + loyalty additions (if any)

- Even if you stop paying the Jeevan Saral premium, 100% of the Maturity Sum Assured,given that 5 or more years' premiums have been paid.

- LIC Jeevan Saral guarantees surrender value

Thus, you should continue with this policy.

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I am Praveen Mishra from Pune. I am 41-year-old. I am living in my own house. I need Rs. 50 lakh after 5 years for my children’s higher education and Rs. 1 crore after 12 years for my retirement. I have made a few investments:

- Axis Equity Mutual Fund: Rs. 5,000 per month, since last 4 years

- PPF: Rs. 8,000 per month, investing since last 3 years

- RD: Rs. 17,000 per month, just started for 1-2-3 years gradually (5k-7k-5k)

- A Term Plan: Rs. 1,000 per month for Rs. 30 lakh

- Mediclaim: Rs. 1,500 per month for Rs. 5 lakh family floater plan + I have Rs. 3 lakh cover

- LIC (JeevanSaral): Rs. 3,500 per month (Sum Assured Rs. 10 lakh after 10 years)

- ICICI Prudential Smart Kid: Rs. 1,100 per month from last 10 years

After all investments and routine home expenses I have spare Rs. 30,000 per month. After 1 year, the spare amount will be Rs. 50,000 per month.

Now my question is following:

How can I achieve my goal? Where more can I invest? How much I have to invest at what place to achieve my goal? I am interested in investing in SIP (Systematic Investment Plan) Mutual Funds. Can I invest my spare amount in share market? Can I purchase one more property? Please guide me what is best for me?

Dear Praveen, congratulations for making regular investments and taking the steps towards preparation of a financial plan for you.

First, continue maintaining your existing savings (SIPs and insurance policies).

Second, as the education goal of the kids is due for 5 years and you require a huge amount of savings (approx. Rs. 55,000 per month) to accumulate that amount. You can direct your Axis MF SIP (Rs. 5,000 per month) and the RD savings (Rs. 17,000 per month) for this goal. These savings would help to accumulate half the amount needed (Rs. 26 lakh approx.). Also, assuming that your ICICI Prudential Smart Kid Plan will stop when the education goal start (year 2019), you would be having an accumulated amount of around Rs. 3.40 lakh from this policy.

For the remaining amount (approx. Rs. 20 lakh), you need to save in around Rs. 17,000 monthly. We recommend that you save this amount into Balanced Fund of a reputed AMC.

Third, as stated that you need Rs. 1 crore at retirement, you would be required to save Rs. 33,000 per month. Given your cash flow after saving for the kid’s education goal, you would be having Rs. 13,000 remaining every month. You can save this amount into a Pension Fund. After 1 year, you would have additional Rs. 20,000 available every month. We recommend that you start SIPs into Equity and Balanced Funds. You will be able to achieve your goal.

In regards to your query for stock market investments, we advise you to go through Mutual Funds channel, as both of your goals – retirement and education are responsibility goals. Mutual Funds are better managed as they have an expert team to do the research, stock picks, etc.

Also, for property purchase, concentrate on kid’s education goal for now. Once they are accomplished, you can look into an attractive location within your budget and specifications.

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I'm 29-year-old salaried professional from Pune, earning Rs. 60,000 per month. My wife is self-employed and we have a 1.5-year-old daughter. I need some advice on investment planning.

I stay in a rented apartment in Pune, which costs me Rs. 10,000 per month. My priority is tax-saving followed by contingency fund accumulation and wealth creation. I currently invest in Bank FD, PPF and NSC. I also have a LIC Policy with a premium of Rs. 1,021 per month. I invest approx. Rs. 3,350 (for self, spouse and mother) in Post Office Savings (No Tax Benefit), which will end in 2017.

I want to add ELSS/MF to my portfolio for higher returns. Could you please guide me how should I go about it and which funds should I choose and their allocation/tenure? Also please suggest if my current portfolio needs any restructuring or additions?

- Devendra  D. Gundecha

You are thinking in the right direction by choosing the mutual fund route to create your wealth. We firmly believe that equity as an asset class has a potential to beat inflation over a course. Therefore, investments in equity mutual funds give you a better chance at beating inflation. It is also nice to note that you are investing in Bank FDs, NSC&PPF. However, you must invest more in equity compared with debt instruments given your age, so that you generate inflation-beating returns over the long term.

In the Union Budget 2014, the Finance Minister, Mr.ArunJaitley, hiked the Investment limit u/S 80C from Rs. 1.00 lakh to Rs. 1.50 Lacs. It means you can now save more tax by investing additional Rs. 50,000 in ELSS schemes.

Your investment in ELSS schemes will offer you twin benefits. First, it allows you to save your tax up to Rs 1.5 lakh under Section 80C. Second, it helps investors to build their desired corpus over the period of time. You can consider investing in Reliance Tax Saver (returned 21.03% p.a. in the last 3 years) and Axis Long Term Equity Fund (gave 22.05% p.a. in the last 3 years) through a SIP route.

Allocation: A thumb rule of 100 suggests that one should subtract the investor's age from 100, and the difference amount would be allocated to equities. For a person of your age, the rule suggests that 71% of your portfolio should expose to equities and the rest 29% should be invested in debt. You can alter this ratio with age, with reduction in equity, and additions in debt. By following this rule, you can restructure your portfolio. My only suggestion is that you need to increase exposure to equities and invest 71% of your monthly savings in equities and the rest 29% in debt instruments. You can split your investment equally between aforementioned funds.

Tenure: An investment in ELSS comes with a lock-in-period of 3 years from the date of investment. Hence, your investment remains invested in them for at least 3 years. I would also like to inform you that in case of SIPs, each SIP tranche is considered as a fresh investment in ELSS Fund and each instalment must complete 3 year compulsory lock-in-period. Until each tranche completes mandatory 3 years of lock-in-period, you can't redeem it.

You also need to decide your investment horizon. For this, you have to identify the purpose of your investment first. Set your goals accordingly. You have to decide the investment horizon till what time you can hold these investments and corpus size that you are looking to build in that particular time.

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