Discontinue Life Stage Pension | Value Research You should surrender your pension plan and invest the proceeds into well-rated balanced funds
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Discontinue Life Stage Pension

You should surrender your pension plan and invest the proceeds into well-rated balanced funds

I am 69 years . I have the following policies of ICICI PRU

  1. Life Stage pension Policy, taken on 27/9/2009, 3 years Premium paid ₹15 lac. Present value is ₹25,35,000 (RICH Fund)
  2. Elite wealth II policy, taken on 24/06/2014, ( LIfe cover for my Grand Daughter) . 1st premium of ₹5 lac paid ( 4 more premiums of ₹5 lac each are payable). Present value is ₹532,000/- ( Maximiser V fund)

I have a feeling these policies are not offering any worthwhile returns
Should I surrender?

  1. The Life stage Pension policy? I will get the NAV value less surrender charges of about 2% of NAV value and
  2. Stop paying further premiums on Elite Wealth policy? I guess this will earn about 4% interest for the balance four years after which I can withdraw the amount.

If I invest these funds in select MF, will I get better returns. Please advise
- Nagarajan

ICICI Pru Lifestage Pension
ICICI Pru Lifestage Pension has deducted fund management charge and policy administration charge equal to 4.65%p.a. You are in a better position than most of pension plan investors. You have earned approx 11% p.a which is a decent return if we talk of such policies which are known to charge higher fees and eat up returns. Charges under this plan are lower as compared to its peers. However, it is still on the higher side as compared to mutual funds. Mutual funds charge a maximum of 2.50 per cent for equity funds and 2.25 per cent for debt funds.

You may surrender your pension plan.You have completed five years and not paid premiums for the last two years. The surrender charge will be four per cent of the fund value. From taxation side, the entire surrender value will be added to your annual income and taxed as per your tax slab. Also, you will have to pay back the tax exemptions you would have availed on the premiums paid until now.

ICICI Pru Elite Wealth II
Your grand daughter does not need insurance till she starts sharing financial responsibilities of the family. Keep insurance and investment separate. This unit linked policy deducts around five percent as charges, which on the higher side, especially compared to mutual funds.

You are right about the four per cent interest you would earn if you discontinue to pay premiums . Insurer will also deduct a discontinuance charge equal to lower of four per cent of (AP or FV), subject to a maximum of ₹5,000. You will be able to take out your funds after completion of five policy years. Surrender value will be added to your income and taxed accordingly. In this case, you will not get any tax benefit and any deductions claimed earlier will get reversed and you will have to pay tax. As per the new section 194DA of IT Act (effective from 1st October 2014), if policy proceeds for a year exceeds ₹1 lakh, then the tax deductions at insurer's end will be as under. Policyholder will have to pay remaining tax while filing ITR.

  • At 2% (for valid Pan registered)
  • At 20% (for valid PAN not registered)

Insurance policies are not the ideal vehicle to grow your money. Equity mutual fund schemes are better vehicles for the purpose. Start with balanced funds if you are a first time investor. Balance funds are suitable for first-time investors in stocks as they invest in a combination of equity and debt and they rejig their portfolio depending on the market conditions. They are relatively stable and they have the potential to offer better returns. Invest in one or two equity mutual funds that suit your risk profile for any financial goal that is at least five years away. Use a monthly systematic investment plan (SIP) to avoid investing all your money at a market high. You may choose high-rated funds from our website Fund Selector tool.

Retain some portion of the money in your savings account if you need money immediately. You should invest in balanced funds with an investment horizon of at least five years. You may also instruct your fund to systematically withdraw on a monthly basis for regular expenses.

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