Guaranteed Return Plans are one of the most trusted and affordable savings-cum-insurance products available in the market today. These plans suit conservative investors who do not want any volatility in returns and want a certain fixed amount on maturity. Conservative investors who wish to avail tax free returns and want to avail tax benefits on the premiums invested must stick to these plans for the best returns.
Considering the market conditions and the high volatility that we all have been witnessing since the last year, – with the onset of COVID-19 pandemic – maintaining financial stability has become the utmost priority. Moreover, with most traditional investment products – bank fixed deposits mostly – losing interest of the investors due to drastic fall in the rate of interest, it is time to park your money in products that guaranteed returns.
Mr.Vivek Jain, Head – Investment, Policy Bazaar has given few guidelines to the investors, those guidelines were mentioned below.
Fight Re-investment Risk
One of the most prominent reasons why guaranteed return products have created a niche for themselves in the savings-cum-protection products category is that these plans not just guarantee returns for 5 or 10 years but up to a maximum of 40 – 45 years – rightly catering to the reinvestment risk. Reinvestment risk is amongst the most important elements worth considering when planning investing your money for the long term especially considering the falling interest rate of most investment products.
Higher Returns than Fixed Deposits
These non-participatory plans, instead of declaring bonus that may vary depending on the profits that insurers make offer a guaranteed return in lieu of a bonus that is much higher than the interest offered on most bank fixed deposits. As per market reports, the maximum returns that, most banks are offering for a 5-year fixed deposit is between 5 per cent – 5.5 per cent. However, the rate of returns on guaranteed returns products is as high as 6 per cent.
Varied Payout Options
While some may offer returns in form of monthly instalments, there are also plans available in the market wherein you can choose to avail the payout options as annual income. In addition, in some plans, guaranteed returns are added to the policy from the second-year onwards while in some cases, returns may start after the policy pay term. The payout structures, especially in guaranteed return plans, can be used to ensure cash flows at important future goalposts, such as higher education of a child, child’s marriage or payment for a home loan
Today, insurers have come up with plans wherein you can surrender the policy within the first 5-years of investment without paying anything extra. This caters to the liquidity risk that often many traditional products lack as customers can anytime surrender their policy to receive their premiums back. There are also plans available in the market, wherein customers start receiving a monthly income from the 2nd year of investing their money hence offering customers early liquidity.
Invest Online to Earn MoreWhen planning to invest in guaranteed return plans, it is always suggested to buy online as a few guaranteed plans sold online promise extra maturity benefit to the customers in comparison to offline products.