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The policy you have taken has given you an annualised return of about 3 per cent. This is certainly not a good return

I had taken HDFC Life Young Star policy in March 2007 and have paid 72 monthly instalment of Rs 2,000. Till March,I have paid Rs 1,44,000 and my latest fund value is Rs 1,56,000. I am worried that even after six years my fund value is just Rs 12,000 more than what I have paid as premium. The policy term is 15 years and was taken for my daughters higher education. Should I discontinue and invest somewhere? If yes,where can I invest it for six years?

Anil R Patel

The policy you have taken has given you an annualised return of about 3 per cent. This is certainly not a good return. Moreover,this is an ULIP where the returns are subjected to market return. Since 2007,the market has not moved. At the same time,ULIPs have high charges associated with it. Hence you have got low returns. As of now,market doesnt seem to do good in immediate future because of slowdown in the economy. I would suggest,you start SIP in a balanced or debt mutual fund immediately so that you can build a good corpus for your childs higher education. At the same time,I would suggest you increase the amount of SIP to Rs 4,000-5,000 per month in the debt or balanced fund. An investment of Rs 5,000 per month in a good mutual fund with annualised return of 12 per cent will build a corpus of Rs 10 lakh in next 9 years. It would be good to invest in some part in balanced mutual funds and some part in debt fund.

I am reading the highlights of Budget for FY14 where the finance minister has mentioned tax credit for taxpayers falling in category of Rs 2-5 lakh/ annum. I want to know how it is different form the exemption limit. My current salary is Rs 2,10,000. How much do I have to pay?

Pankaj Agarwal

This credit will be applicable on the amount of tax the individual is supposed to pay. You are right on your assessment that this is equivalent to raising the exemption limit to Rs 2.2 lakh per annum. Now,why did the government not raise the limit and chose to give tax credit is because of the simple fact that this credit will be easier to roll back in future than rolling back tax exemption limit. The tax exemption limit typically goes up. Hence reducing this will be a political suicide for the government. Tax credit is easier to discontinue though. As the name suggests,it is a credit and hence you cannot question if the government withdraws it in future. This is just psychological angle and nothing else. Since your income is Rs 2.1 lakh per annum,there will be no tax liability.

Expert advice by Adhil Shetty,CEO,Bankbazaar

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