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When should you exit from an investment

Invest in debt instruments for non-negotiable financial goals, if the time at hand is less...

I have invested Rs 2.4 lakh in HDFC Young Star ULIP in three annual installments for a Rs seven lakh cover, since 2008. I stopped paying premium after three years and the current value is Rs 2.75 lakh. HDFC has been deducting Rs 600 per month as various charges and my investment is eroding. I want to withdraw this money and invest in Mutual Funds. I will need this money after two years for my daughter's education. Please suggest where can I invest? Also, I want to take a term policy to compensate the life cover lost.
- Guru

HDFC Young Star is an old ULIP with a lock-in period of three years. Old ULIPs allow you to surrender the policy after completing the lock in period. Since you stopped paying premiums before the policy matured, it is bound to be in paid-up mode now. In paid-up policies, insurance companies continue to deduct various charges that are mentioned in the policy document. It is good to know that you have made positive returns but since you need this money after two years for your daughter's education, you cannot take any risk. Go through your policy document and look for the surrender option.

You can then invest your money in debt instruments like bank fixed deposit or post office term deposits, offering guaranteed returns. A two year bank FD offers 8.75 per cent interest and a similar tenure's deposit with post office will fetch 8.3 per cent per annum. These deposits do not provide any tax benefit. The interest income will be added to your taxable income and taxed accordingly. For example, if you fall under 30 per cent tax bracket, net return on bank FD after deducting tax and cess would be 6.04 per cent.

Or if you can take some risk, you could consider Monthly Income Plans. Compared to the deposits, your interest income from Monthly Income Plan held for more than a year will be subject to either 10 per cent tax without indexation or 20 per cent with indexation. However, it is important to know that MIPs do not guarantee returns. Fixed deposits with bank or post office, on the other hand, are safer than MIPs as they protect your capital and offer guaranteed returns.

For your life insurance needs, Aegon Religare iTerm Plan, Aviva i-Life Term Plan or HDFC Life Click2Protect are good online plans. You may go for either of these. The Sum Assured should be large enough to take care of your family at least till your retirement years, in case a mishap strikes in your earning years.



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