Time to look at Top-ups on your Pension and Children Plans

We have been seeing a very volatile stock markets with a negative bias over the last 3 months. The NIFTY has corrected from 6000 levels to sub-4000 levels and the index PE has fallen from 17 to less than 14. This has been caused by the global factors like continuously raising crude oil prices, commodity prices, threat of inflation and stagflation (raising inflation with negative economic growth) across continents and top it all the liquidity crisis and the lack of confidence on the stocks. So taking into account all the above factors, the markets has discounted heavily leading to a 35% correction on NIFTY in 2008.

We also acknowledge that all these factors are true and bound to have an effect on the stock market performance over the short to medium term, but the moot question is, from the long term perspective does this provide an opportunity to buy/increase your exposure to Indian equity. We believe that it is definitely a good opportunity to start buying Indian equities slowly but steadly. Nobody can predict the tops and bottoms of the stock markets exactly, but as investors we should make good use of the huge market corrections for increasing our exposure in the long term investment options. Since many of us don't directly invest in stock markets but we invest through our Mutual Funds units, Unit linked Plans for Pension, it is a good time to look at making top-up premiums to our existing plans.


The advantage of top-up premiums are :

1. It allocates the maximum amount towards investment content rate (ICR). In many cases, almost 99% of the top-up premium goes towards investment allocation.
2. As the market has come down significantly and the NAV's of various funds have corrected by huge margin, the unit holders would get higher number of units.
3. Top-up premiums should be used for effectively increasing your pension or other LONG TERM investment plans corpus only. By long term, we mean where we allow the investments to remain for more than 5 years or so.