Buy a term cover to fulfill your insurance needs and opt for mutual funds for investment needs
25-Aug-2015 •Research Desk
I am 31 and I brought ICICI Lifestage Assure Pension plan in 2009. I have paid a premium of ₹20,000 in last 6 years (total premium paid ₹1,20,000/-). The current fund value is only ₹1,48,000. My ICICI financial advisor is asking me to invest in ICICI Prudential Maximizer Fund and close the existing policy. Please advise what should I do as the return in maximizer fund looks good in comparison?
- Ritesh Aggarwal
Insurance should take priority over investment if you have financial dependents. And term plans help you get meaningful risk cover with a modest premium. You should look at insurance as an expense to financially secure your dependents.
And investments should be goal-based and investment options should be picked according to the investment horizon. Any long-term investment must be diversified, accumulated regularly, low cost, transparent and simple to understand, tax efficient and liquid.
You should not mix insurance with investments because you would end up buying insurance plans with investment element in them. They are costly, provide a limited cover for the premium you pay, and a substantial part of the premium goes towards investment. That is why insurance-cum-investment plans do not have most of the essential variables of a good investment.
But such plans are aggressively sold because of the high incentive paid to sell them. Resisting the aggressive sales pitch is your responsibility.
Surrender your policy and take the money out. Don't heed to your advisor. He is trying to sell you products that fetch higher commision for him. Go for a term plan for your insurance needs, and opt for well-rated balanced funds like L&T India Prudence, ICICI Pru Balanced Advantage, Canara Robeco Balance for your investment needs. A balanced fund is suitable for first-time investors, as it invests minimum 65% in equity and the remaining in debt. These funds automatically balance the allocation according to the market condition. They are relatively stable and they have the potential to offer superior returns over a long period. Just for the sake of comparison, your policy has generated 6 per cent internal rate of return, whereas balanced funds category has generated an average return of 20.45 per cent per annum.