I want to invest 17000 per month in combination of ULIP and ELSS for Retirement Planning

It is always prudent to separate insurance and investment goals. Retirement planning is purely an investment goal. However, before you start investing you should ensure that you have enough life insurance cover or sum assured, to provide financial security to your family in the event of an untimely death. Our view in Advisorkhoj is that, term life insurance plans are the best form of life insurance protection. We have discussed this in details in our recent blog, Why are non term life insurance plans detrimental to your financial needs. You should always compare different life insurance plans, before buying your life insurance policy (How to select the best term life insurance plan for you).

Let us now come to retirement planning. You have correctly identified ELSS as your preferred investment choice for retirement planning. ELSS not only help you save taxes but over a sufficiently long investment horizon can create substantial wealth for you. We have discussed why ELSS is one of the best retirement planning options at length in our article, ELSS is one of the best retirement planning investments for young investors. When selecting good ELSS funds for your investment you should look at the long term track record of the fund, the consistency of performance and the track record of the fund house. We have reviewed some top ELSS funds in our blog, Tax Planning: Review of top 6 Equity Linked Saving Schemes. You can consult with your financial advisor and select one or two ELSS funds for your retirement planning.

Unit Linked Insurance Plans or ULIPs are combined insurance and investment products. A portion of your premium goes to buy insurance cover and the balance is invested a investment fund of your choice. In theory, it should work like a combination of term insurance plan and an ELSS mutual fund. In reality, however, it does not work like a combination of term plan and ELSS. This is because, apart from mortality charges which goes towards the payment for the life insurance cover, there are several other charges like premium allocation and policy administration charges, that get deducted from your premium before investment in units of the investment fund. Though the charge structure of ULIPs have been substantially modified by IRDA regulations, even now a significant portion of your premium, as high as 10%, goes towards these charges, especially in the early years of your policy life. Since a smaller amount gets invested in units, your effective returns are lower. We have discussed the effect of these in our blog, Term Insurance and Mutual Fund or ULIP: Which is a better option? Over a very long investment horizon, say 15 – 20 years, ULIPs have the potential to give good returns to investors. However, if you decide to invest in ULIPs, you should ensure that you understand the price structure and all the policy terms and conditions. Based on our internal research, a combination of term insurance and ELSS is a better investment option than ULIPs.

Finally, a word or two about tax savings. You should note that, your entire investment of Rs 204,000 per annum (Rs 17,000 monthly) will not qualify for tax savings under Section 80C. The Section 80C limit, whether it is investment in ULIP or ELSS, is Rs 150,000. However, as announced in the last Budget, you can get an additional Rs 50,000 tax savings under Section 80CCD, over and above the 80C limit, by investing in the National Pension Scheme (NPS). By investing Rs 50,000 or more per annum in the National Pension Scheme, you can ensure that almost your entire investment amount also qualifies for tax savings. We have discussed different aspects of investment in National Pension Scheme in our blog, National Pension Scheme can be an aid for your Retirement Planning.