I have invested in the ICICI Prudential Pinnacle fund, which offers the highest NAV achieved in 7 years. I have paid the premium for 2 years. Should I continue investing in it? I would also like you to suggest a good fund to invest Rs 40,000 to Rs 50,000 in March and April.
-Ravi
Many insurance companies are offering funds that are similar to the ICICI Prudential Pinnacle fund. The headline of these funds is very compelling, which says that you will be able to capture the highest NAV in an investment period of 7 years. The impression that this gives is that if you had invested in 2005 and when the Sensex fell down after touching the 21,000 mark, then you would have been able to lock that 21,000 high. The fund creates this kind of an impression, but that is not true. The fund keeps changing its asset allocation so that it can lock that particular highest NAV achieved. The disadvantage of this structure is that once the fund attains the high value and the markets fall down, then the fund becomes conservative. It then invests in fixed income so that it can hold onto those returns. So the fund won't be able to achieve a higher NAV once a previous high has been locked. Hence, investors’ impression about such funds is wrong that it will give the highest NAV of 7 years. Apart from that, these kinds of funds are expensive ULIPs. We would suggest that you keep investing in it for 3 years because you would have already borne the expenses in the first year. Don’t redeem your investments for 5 years as the surrender charges would be high. And don’t mix investments with insurance in the future.
Coming to your second question, there are 2-3 rules that an investor can follow for a long-term investment: Invest regularly, choose a balanced fund if you have never invested before, and get into higher risk categories only progressively. Some balanced funds that we would recommend are DSP BlackRock Balanced, HDFC Prudence, UTI Balanced or Birla Sun Life 95, all of which are reasonable choices.
This article was originally published on February 14, 2012.
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