Don’t buy insurance if you need money in a few years

Chit funds are liquid enough, but ensure that they are safe, transparent
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First Published: Mon, Nov 12 2012. 08 53 PM IST
My parents are senior citizens and have health insurance plans. They are financially dependant on me. I have a life cover of Rs.80 lakh. Do I need to take more? Also, is there any fund that can give my parents monthly income after a few years?
It is good that your parents have a health insurance policy as getting one as you get older is difficult. You should ensure that you have a life cover of 7-8 times of your income, is over and above any liabilities. For a life cover, online term plans are recommended.
It is prudent to evaluate your existing insurance policy and consider changing the same. However, this will depend on your age and medical condition. You should surrender or stop your existing policy only after the new cover is active. Along with life insurance, you should also have a medical insurance.
For creating a corpus that starts yielding a monthly income, you can consider investing a lump sum and build it up by investing every month through a systematic investment plan. You can invest in monthly income plans, which predominantly invest in debt. From here, you can start a regular dividend payout plan or a systematic withdrawal plan to ensure regular income.
I don’t have a fixed income but I manage Rs.30,000 per month. I have been investing Rs.1,000 each in Franklin Templeton Flexi Cap Fund, SBI Magnum Global Fund (Growth) and Reliance ERGO (Eq. Advantage fund) per month since November 2007. I invest Rs.3,000 per month in Public Provident Fund (PPF). I have a recurring deposit for Rs.1,000 since two years. I have five insurance plans with an yearly premium of Rs.65,000. I contribute Rs.12,000 to a chit fund. I want to construct a house and purchase a car. Is it possible to accumulate Rs.50 lakh by 2016?
—K.B.K. Swamy
You are currently saving Rs.24,400 per month, which is commendable. But you will not be able to save the desired corpus in four years. With the above saving done regularly, your principal saving comes to Rs.11.71 lakh. Add your existing corpus of around Rs.5 lakh and it becomes Rs.16.71 lakh. At an average earning of 10% (and you are not earning this rate right now), the total value of the corpus comes close to Rs.20 lakh.
But the more critical part is liquidity. Many of your investments would not be available in four years. You don’t invest in insurance if you need funds in a few years. Also, why do you need five insurance policies? PPF is a good investment but again it does not fit your objectives. Chit funds are liquid enough, but are you sure whether it is safe and transparent.
The three mutual funds (MFs) you have are average performers (Reliance Equity advantage is called Reliance Top 200 Fund).You need to move to better performing funds.
You need to do major changes in your portfolio. Don’t be under too much pressure to achieve your target in a short period.
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Surya Bhatia is managing partner, Asset Managers
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First Published: Mon, Nov 12 2012. 08 53 PM IST