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Go for a Term Cover instead of a ULIP

The ICICI Prudential Elite Life Maximiser is an expensive ULIP that isn't recommendable for most individual investors

I am 31-years-old. My ICICI financial advisor is suggesting that I invest in the ICICI Prudential Elite Life Maximiser Fund. Is this a good fund? I want to invest ₹10,000 to ₹20,000 every month for the next 7-10 years. In which funds should I invest? I was thinking of investing in HDFC Top 200, but your website rates it as 'Average'.

ICICI Pru Elite Life II is a unit linked policy which is a blend of insurance and investment. If you buy a ₹20 lakh cover, it charges an annual premium of ₹2 lakh. Out of this sum, ₹3740 goes towards buying insurance. This isn't expensive as it is almost equal to the premium for an online term plan. But apart from insurance, this policy also acts as an investment vehicle. On this portion, the expenses charged by the insurer are high. The Premium Allocation charge is 4 per cent for initial five years. This then reduces to 2 per cent from 6th year onwards. This charge is levied for the initial expenses incurred by the company in issuing the policy - for instance, the cost of underwriting, medical tests & distributor commission. This expense gets charged at the time of premium payment and units are allocated in chosen funds for investment after this deduction. Besides the Premium Allocation charge, Fund Management charge stands at 1.35 per cent annually and Policy Administration expense which is ₹4,800 a year under regular pay option (annual premium pay option). This policy is not recommended as it is quite expensive. This tends to eat into the returns generated by the investments. A lower cost option would be a pure term plan for an adequate sum assured. At your age, a healthy non-smoker can obtain a ₹50 lakh term cover for around ₹7000 a year.

Invest the rest of your savings into mutual funds, where you can more actively track the performance and have the flexibility to switch to a better fund if the product underperforms.

On your mutual fund investments, low risk funds usually do not offer high returns as risk and reward go hand in hand. If you would like to restrict risk, maybe you should consider a balanced fund instead of a pure equity fund such as HDFC Top 200. Balanced funds, because they typically park 30-35 per cent of their portfolio in debt instruments usually suffer lower losses in the case of a stock market fall. We would suggest systematic investing in HDFC Balanced Fund. The fund has 10 year annualised returns of about 17 per cent and 5 year returns of 21 per cent. It ranks among the top 10 funds in its category over 3-5 and 10 year time frames.

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