Query Corner

I am 30 years old, married, with a 6-month-old child. Seven years ago, I had bought a Ulip, whose current value is less than the amount I have invested over the years. Should I withdraw from it and invest the money in some other avenue? -Sumit Uteraja, Chandigarh
As most of your financial goals have a long tenure (retirement, child's education), it will be better if you let the fund grow over the next three years. When the surrender charges become nil, you could withdraw the money from the Ulip.

In the meantime, you can make partial withdrawals and put the money in other investment avenues. However, before doing so, evaluate the financial instrument thoroughly, especially its track record. You could also stop further investment in the existing Ulip and put the money in a child plan, which can be exclusively for higher education.

For this, you can choose a traditional plan or a unit-linked one. The cost of the Ulips launched recently has fallen substantially, making these an attractive option.

I have been paying an annual premium of Rs 2 lakh for the past six years for a Ulip that provides me with a cover of Rs 60 lakh. The policy's value has not appreciated much over this period. Should I continue with it? -Vikram Kakar, Mumbai
You have already paid the premium for six years, so you should evaluate the fee structure of the Ulip for the remaining term. You can compare this with the new Ulips (given the rationalisation of charges) and if these are better, you can stop paying the premium for the subsequent years and switch to a cheaper product. You may be slapped with a penalty if you surrender the policy now, so let the Ulip grow over the next few years and withdraw when the penalty is nil.


My wife and I invested in tax-saving mutual funds in 2007. As the lock-in period has ended, and considering the current state of the market, should we redeem these? -Gurudas Sengupta, Asansol
The market is doing well, so it's a good time to book profit. You can partially redeem the taxsaving plans and invest the money in a debt fund, which has a systematic transfer plan (STP) in an equity fund.

This will ensure that if there is a further upside in the market, you can re-enter in a phased manner. The downside will also be protected as you can continue buying if the market corrects from this point on. You can also use the money to re-invest in an equity-linked savings scheme.

For the past six months, I have been investing in the HDFC Capital Builder fund and HDFC Top 200 fund through systematic investment plans (SIPs) of Rs 1,000 each. Should I continue with these funds? -Satya Shankar, Bhubaneswar
The funds you have chosen are good. However, you could start fresh SIPs in other funds to reduce the risk of excessive exposure to a particular fund. Diversifying among multiple funds will help you optimise returns. You could invest in IDFC Premier Equity fund, Birla Sun Life Equity fund and Reliance RSF Vision fund.

I have been investing Rs 5,000 each in HDFC Top 200, Birla Sun Life Frontline Equity and Reliance Regular Savings funds through SIPs for the past 12-18 months. Now, I want to invest Rs 2.2 lakh. Should I put it in the above funds or choose between DSP BlackRock's Equity fund and Top 100 fund? -Ram Goyel, Mumbai
As you have only three funds in your portfolio, you can add a few more. However, restrict the number to six or eight, as this will enable you to manage your portfolio in a better manner. Avoid investing the entire Rs 2.2 lakh in an equity fund. You can put the money in a floating rate fund with an STP in an equity fund of the same fund house.

Your funds are predominantly large-cap, so you could opt for a mid-cap fund, such as Sundaram Select Midcap or ICICI Pru Discovery fund. This will help in diversification. You could also consider gold mining mutual funds, such as the DSP BlackRock World Gold fund, for the long run because these act as a hedge to the equity portfolio.


My company provides me with health insurance, but I want to buy additional cover. Should I take the one being offered to accountholders by Punjab National Bank, in collaboration with Oriental Insurance? Should I also buy health insurance for my mother, who is a dependant and is covered under corporate insurance? -Dilshad Jhaveri, Ahmedabad
You should evaluate health insurance plans on the basis of the longevity of the cover. The option from Punjab National Bank is good. However, if the bank discontinues this scheme for any reason, you will be left in the lurch.

You could, instead, consider other options such as plans from Apollo Munich and Max Bupa Health, which offer covers till 99 years, or public-sector insurers, such as United India Insurance. If your mother is within the insurable age, you should take a cover for her as well.

I am 30 years old and want to buy a term insurance plan worth Rs 40-50 lakh. LIC and Birla Sun Life Insurance seem to be good options as their claim settlement percentages are high. Which of these is a better pick? How will purchasing online benefit me? -S.B. Chauhan, Jaipur
You should evaluate a term insurance policy on the basis of quotes and tenure. A higher percentage of claim settlement does not suggest that the insurer is better. The features of term plans across insurers are usually the same, so look for the cheapest quotes. Buying a policy online is less cumbersome in terms of paperwork.

Taxspanner.com will answer queries on tax, Antony Jacob, CEO of Apollo Munich, will deal with health insurance, and Anil Rego, CEO, Right Horizons, will tackle financial planning issues.


I want to take a home loan of Rs 28 lakh for 10 years. However, as my current post-tax income is Rs 55,000, the lender feels my repayment capacity is low and is insisting on a tenure of 20 years. This will push up my interest cost. How can I have the loan tenure reduced? -Dinesh Shah, Ahmedabad
The lender usually considers the convenience of the borrower in repaying a loan, which is derived from the 'instalment to income ratio'. The higher the ratio, the more difficult it is for the borrower to service the loan. So, in your case, a 10-year term is not advisable. However, as and when your income level rises, you can approach the lender and request for an increase in the EMI, thus reducing the term without any additional cost.

In 2005, I took a home loan for 15 years and have prepaid portions of the outstanding amount. However, if I prepay more than 25% in a year, the lender will impose a 2% penalty. Should I still prepay the loan, on which I am paying an interest of 10.5%? -Jasjit S. Kalra, Gurgaon
Prepaying a loan depends on its cost and the impact on your cash flow. If you have multiple loans, prepay the one that has the shortest term. It is better to prepay a personal loan or car loan, which has a shorter tenure and high interest rate, rather than housing loans, which are for the long term, are relatively cheap and also offer tax benefits.

Instead of prepaying, you could invest the money in an avenue which delivers returns higher than 10.5 per cent or you could prepay less than 25% and invest the rest of the money.

Renu Karnad is the Managing Director of Housing Development Finance Corporation. She will answer queries on home loans.