I have invested ₹3 lakh in 2009, 2010 and 2011 in SBI Life Unit Plus Elite Plan for a three-yeas payment term. The fund value at present is ₹13.28 Lakh. Is this return comparable with mutual fund? Should I surrender or hold on to it, considering Sensex is expected to improve on good monsoon?
- K B Singh
SBI Life Unit Plus Elite Plan is a Unit Linked Insurance Plan (ULIP) or an insurance plan with an investment element in it. A ULIP and a mutual fund scheme are not strictly comparable. Mutual funds are pure investment products which invest your money for you and charge a small for the job. A ULIP, on the other, offers you a life insurance cover along with an investment option. Because of this, your entire premium does not get invested. A part of it goes towards life insurance (mortality charges), administration expenses, fund management charge and premium allocation charges.
Your total premium was ₹9 lakh and the fund value is ₹13.28 lakh in seven years. That means you have earned only 6 percent return in the last seven years. This is much lower than the interest offered by bank fixed deposits. Though returns offered by mutual funds and ULIPs are strictly not comparable, just to get an idea let us look at how mutual funds have fared during the same period. Most top-rated mutual funds have offered around 14-16 per cent during the same period. For example, Franklin India Prima Plus and TATA Balanced Fund have given more than 16 percent in the last seven years.
If you are not happy with the performance of the policy, you may consider surrendering it. Since you have completed the lock-in period, you can surrender this policy without any surrender charges. Surrender value will be the fund value at the time of the surrender. You can invest the surrender value in a diversified equity mutual fund via a monthly Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP).
Do not commit the mistake of basing your investment decision on short-term trend in the stock market. Always invest in equity mutual funds to achieve your long-term financial goals of five years or more.
This article was originally published on April 26, 2016.
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