Case of a middle aged company executive at middle rung

The gentlemen was looking for some investment with a view to getting tax benefit under provision of exclusive pension saving . He was tied up with many policies issued by LIC for different sum assured and some were money back policies. I explained to him that money back policies are never meant for those in service who have to save for long term over long years. After enough life risk cover has been taken, any further risk cover policy is waste of money on risk cover charges. Since he was looking for pension plan himself, the matter was simple enough. He was already quite satisfied with the credentials of HDFC SLIC, so I had only to explain him what he would get in ULPP againstthe traditional plan. I explained to him that in traditional plans, the funds remain entirely under control of the insurance company and the same may never be used for investing in equity even if the market iscrying for rewarding you and is at a very comfortable level from the angle of risk / reward. The provision of free switching is itself very valuable from the angle of cost saving and opportunity grabbing.

After deliberations, he decided to go for ULPP with Rs. 10000/- annual premium payable half-yearly for 25 years. In the month of March 2004 when the policy was taken, markets were already high after two-year Bull Run. Although optimistic, I did not want him to put money in growth fund initially and suggested for balanced fund. I told him when ever in doubt or whenever you do not want to risk by switching frequently but wish to stay for long term, the balanced fund is the best thing. How ever during the year 2005 on a suitable date the switching to growth was done. Now, on 13th April 07 he holds 327 balanced fund units and 542 growth fund units and his fund value stands at Rs.44000/- while he has paid seven installments of Rs 5000/- so far. Adjusting for the initial charges his growth has been 18% p.a. (compounded basis).

His tax saving and other option are the same as for any other ULPP holders and detailed in 'Case of a Lady Teacher’. Don’t you think this is a dream like growth compared to traditional plans and we aretalking of a three-year long period not a flash in pan? We will track the progress later on too and for reference, the policy no. is 1XXX684X issued on 13 Mar 04.

Krishna Kumar Khandelwal