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How to Check Whether Your Wealth Plan is on the Right Track

How to Check Whether Your Wealth Plan is on the Right Track

How to Check Whether Your Wealth Plan is on the Right Track

Have a plan to build your wealth? If yes, congratulations at least you have completed the first step of wealth building needs. If you want to execute your wealth-building cum saving plan, you will need a few more things.

1. The Investment Option

First thing you need towards a successful wealth-building goal is an investment instrument which helps your savings grows. You can choose more than one investment avenues to invest in your goal. However, unless you can dedicate a lot of time in managing multiple instruments starting with a single option is better.

Unless investment management is your full-time role, you should look for an investment which can manage your portfolio without your intervention. Unit linked investment plans from life insurers fit your bill perfectly.

The following features make ULIP plans the best choice for your wealth-building goal:

  • Long-term investment: You can invest in ULIPs till the age of 100
  • Multiple Investment Assets: Invest in equity, debt, or balanced funds with a liquid fund to park your money before the withdrawal.
  • Automated Portfolio Management: Multiple ways to manage your portfolio of equity and debt investments automatically.
  • Bonus Additions for Long-Term Investors: ULIPs also add bonus units to your portfolio if you invest for a longer period, especially for more than five years.

2. How Much to Invest?

Once you have a clear plan in place, the next question is how much you can invest and how frequently. The best wealth building plans are those which have a fixed sum of money flowing in at regular intervals for a long time.

For example, Rs. 10,000 every month for over 20 years; by the end of the 20 years, this investment would be worth Rs. 60 lakhs even if the rate of return is 8% p.a.

If you are saving for other financial goals too, it is recommended that you park about 5 to 10% of your monthly income towards this goal. But, if you can, the higher ratio will do even better for your wealth goal.

Do remember, however, that the amount you choose to invest regularly could be different from the amount you can invest at the moment. For example, you may have a bonus which you can invest in this goal. However, it is not a consistent amount you can rely upon every year.

The best option is to select an amount which you can invest out of your regular salary.

3. Select Your ULIP Plan as Per Your Goal

You can select your ULIP plan benefits to suit your wealth goal. For example, if you aim to build a huge corpus and then use it for other investments or asset purchase, you can select a 30-year policy term.

However, if you want to use the corpus to build a post-retirement income you can choose a lifetime policy. Life-time option will let you continue the plan till the age of 100. With this option and systematic withdrawal feature in ULIPs like Invest 4G from Canara HSBC OBC Life, you can build a life-long tax-free pension out of your wealth.

4. Keeping Track of Your Investment Goal

Once you start investing you need to ensure that your investments are flowing in automatically to the ULIP plan. Also, you should select an automated portfolio management strategy to manage the portfolio risk with the market performance.

These are the two areas which should have minimum intervention from you. However, you should still check the progress of your investment over time. In the case of ULIP plans you only need to check the fund value from time to time.

You may want to keep track of accumulated corpus and your rate of return from the ULIP. To do so, you will need to know the following:

  • How much money have you invested?
  • What is the value of your portfolio now?

You can check the progress easily by writing to or calling the customer service department of the life insurer. However, you have a better way of keeping track of your ULIP’s performance with an e-Insurance account.

Use Electronic Insurance Account

If you have a single ULIP plan, you can perhaps use the online chat, or call the customer service to check your ULIP balance. However, if you have more than one ULIPs and other life and health insurance policies, you can use the electronic insurance account.

The electronic insurance or e-Insurance account is similar to d-mat account for stocks. It enables you to manage your life insurance policies efficiently. Few of the benefits of e-insurance account:

  • Single window management of all life and health insurance policies
  • Single KYC submission for new policies
  • Track your investment plans with consolidated annual report
  • Request for change, switch or withdrawal
  • You can also set-up premium alerts for your plans

Return Estimates & ULIP Performance

Once you have the numbers for the amount invested and your current portfolio value, you can estimate your returns in the following two ways:

  • Absolute returns
  • Compounded returns

Absolute returns will tell you about the total growth of your portfolio, on your overall investment. However, it is difficult to compare this return from other investment options. For example, if you are investing Rs. 25,000 per month, in five years your total investment will be Rs. 15 lakhs.

If your portfolio value after five years is Rs. 18 lakhs, your absolute return is 20% or you can also say that your portfolio value is 120% of your total investment. Table 1 in the article gives you a reference point to compare the returns on your ULIP investment.

Years Portfolio Value Years Portfolio Value
1 104.4% 16 203.0%
2 108.8% 17 213.1%
3 113.3% 18 223.7%
4 118.2% 19 235.1%
5 123.3% 20 247.1%
6 128.7% 21 259.8%
7 134.4% 22 273.3%
8 140.4% 23 287.7%
9 146.7% 24 302.9%
10 153.5% 25 319.1%
11 160.6% 26 336.3%
12 168.1% 27 354.6%
13 176.1% 28 374.1%
14 184.6% 29 394.8%
15 193.5% 30 416.7%

Table 1: Absolute Returns for Monthly Investments Earning 8% per annum

How to Use Table 1 to Know Your Return?

For any given year if your portfolio value is more than the corresponding value in the table, your ULIP investment has performed better than 8% p.a.

For example, if your portfolio value is Rs. 18 lakhs after five years of investing Rs. 25,000 per month; i.e. your wealth grew 20% in five years. Your returns are lower than 8% p.a. as per the table with 120% portfolio value (see highlighted value).

Similarly, at the end of 30 years, your total portfolio value could be more than 400% times of your total investment, if your ULIP plan earns a return of 8% p.a. on average.

What If You Are Investing Annually?

You can still use the table to closely guess your returns. However, in the case of annual investments, your portfolio value should always be higher than the ones provided in the table, at the same rate of return.

So, even if you see your portfolio growth matching the numbers in the table, your compounded return is perhaps less than 8% p.a.

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