I am a 25-year-old male earning a salary of Rs 6 lakhs per annum. With a savings corpus of 1 lakh, my father guided me to his LIC agent to invest Rs 1.9 lakhs into two LIC plans.
Currently, I allocate 16,000 rupees per month towards mutual funds to meet the premiums, while only investing 5,000 rupees per month for wealth creation. Apologies for my lack of financial knowledge as I have recently joined this community and primarily rely on my father’s advice. I would appreciate any assistance or guidance.
Advice by Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance
This is a classic case of well-intentioned but misaligned financial decisions at the start of one’s earning journey. First, kudos to the individual for seeking advice early – it’s the right time to course-correct.
At Rs 6 LPA (50,000/month), allocating Rs 1.9 lakh annually – over 30% of annual income – into LIC endowment or money-back plans is disproportionate and financially limiting. These plans typically offer an XIRR of just 4-5%, often lower than a savings account, with poor liquidity and limited alignment with long-term wealth creation or inflation-beating goals.
Here are a few suggestions:
1. Re-evaluate LIC Plans:
If the policies are recent, check if you’re still within the free-look period (usually 15 days) and consider exiting. If you’ve already paid premiums for a couple of years, evaluate whether to surrender or make the policies paid-up. Use the 1 Finance Surrender Calculator to understand your options. Even if you lose a bit of paid value, surrendering early might free up capital for better opportunities. Take expert help to compare benefit illustrations with potential mutual fund returns over the same period.
2. Shift Focus to Term Insurance + Mutual Funds:
Insurance and investment should never be bundled. If you have financial dependents or significant liabilities (like a home loan), a pure term insurance plan is essential and cost-effective. Otherwise, you can skip it for now. Redirect your savings towards mutual funds via SIPs. You’re already investing 5,000/month – a great start. Once the LIC burden reduces, aim for 10,000+ monthly. Stick to simple index funds or flexi-cap funds, and avoid over-diversifying with too many schemes.
3. Build an Emergency Fund First:
With only 1 lakh saved, your first goal should be to build an emergency corpus equal to 3 – 6 months of expenses. This creates a safety net and reduces the need to exit long-term investments prematurely.
4. Family Dialogue:
Have an open and respectful conversation with your parents. Show them data and
explain modern financial planning principles. Financial empowerment is rooted in awareness, not confrontation.
Conclusion: No, your finances aren’t ruined – but yes, they’re currently misaligned. With a few smart, timely adjustments, you can reclaim control of your financial journey. Learn, unlearn, and keep growing.