Invest in pension Ulips only if you can track your investments well

Updated: Nov 30 2011, 06:19am hrs
How should I look at pension Ulip products and, given their cost structure, does it make good investment Or, should I continue with the Public Provident Fund (PPF) as the ceiling has been raised to R1 lakh

Mohan Ram

We recommend that you continue investing in PPF as it, being a pure debt instrument, gives a safety cushion to your investments with fixed returns. The returns on Ulips are market-linked and, thus, quite volatile. You should opt for a Ulip plan only if you can track your investments very well.

IDFC has come out with its infrastructure bonds with 9% interest. What is the difference between annual and cumulative payout and which is better How will I get the interest amount

Shailendra Kumar

Annual payout refers to payment of interest earned at the end of the year. Cumulative payout implies that the interest payments earned over the stipulated period are accrued and paid at the end of the tenure. It follows the system of compounding, i.e., the interest over a year is added to the principal amount. The interest for the second year is calculated on this arrived amount, and so on. This makes the cumulative payout option a better bet. The interest amount is credited to the bank registered with the dematerialised account through electronic clearing service on the due date for interest payments or where bonds are held in physical form, interest accrued on the bonds will be credited to the bondholder through cheque or demand draft.

I want to invest R5,000 every month for the next five years. Is it better to go for balanced funds or gilt funds

Ramanuj Agarwal

Investing in balanced funds in this scenario, when the interest rates are increasing, is wise. The balanced funds or hybrid funds, as they are commonly called, invest in a combination of equity and debt instruments. Any change in the interest rate scenario is captured by the debt portfolio and the equity part tracks the market movement. This provides both income and capital appreciation while avoiding excessive risk. The diversified portfolios of these funds manage the downside in equity markets without too much loss.

How do Systematic Withdrawal Plans work and do I have to save for a longer period in this plan

Kuldeep Singh

Through the Systematic Withdrawal Plan, (SWP), you can withdraw your money gradually from a mutual fund scheme instead of redeeming all units at once, you redeem your units over a period of time. When you opt for a SWP, a fixed amount (as specified by you) is converted into equivalent number of units as per the prevailing NAV for the scheme and these units are, then, redeemed and the money is given to you. Since the MF schemes are open ended, there is no fixed time horizon for which you need to stay invested.

*The writer is CEO, Investshoppe.com

*Send your queries at fepersonalfinance@expressindia.com