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Money Today        Print Edition: December 2010

ULIP

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.

MUTUAL FUNDS

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.

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