Life is full of uncertainties. This fact has become even more evident over the last couple of years which saw the whole world grappling with a deadly virus, resorting to large-scale lockdowns and other extreme measures. These implications were felt in the financial world as well with stock markets crashing, commodity prices also going through extreme volatility and the overall economy of countries and households, both, going through tumultuous times. In such a scenario, it is prudent to invest in products that can guarantee some financial stability and certainty.
The certainty of a guaranteed return on your investments, irrespective of the extreme volatility of the stock and commodity markets, is something that the Indian investor has often looked for. That is the reason that fixed deposits and provident fund schemes are popular with Indian investors. Here, we explore why guaranteed return plans should be on your investment portfolio as well.
What are Guaranteed Return Plans?
But first, what exactly do we mean by Guaranteed Return Plans? These plans are offered by the insurance companies in which all you need to do is pay a fixed premium on a monthly or yearly basis during the plan’s tenure. After the policy matures, you start receiving 100 per cent guaranteed returns on your investment. You can choose to opt for a lump-sum benefit or recurring income for your payout. The payout depends on the premium you paid, the insurance coverage you chose, and the duration for which you made premium payments. Under these plans, you can choose to receive payouts for a fixed number of years or go for lifelong income. Moreover, you get the flexibility to choose to receive the income on an annual basis rather than on monthly basis.
Why consider Guaranteed Return Plans?
The best thing about these plans is that you know exactly how much money you would get on a monthly basis when the policy matures since the return is guaranteed. This certainty of regular income goes a long way to plan your future and achieve your goals. Another certainty these plans bring with them is that should anything unfortunate happen to you, the financial security of your family is covered. That is because these plans assure long-term, guaranteed income along with life cover equal to 10 times the annual premium.
Also, these plans come with substantial tax benefits. Not only the amount you invest is eligible for Section 80C deductions under the Income Tax Act, the maturity amount is also completely tax-free. Moreover, your investments are insulated from the uncertainty and volatility of the markets. Whether interest rates on fixed deposits go down or the stock markets go through another crash, the interest rates you locked in while buying a Guaranteed Return Plan remain the same, and so does your future income from the plan.
More flexibility and ease of liquidity
Though these plans aim to lock in your money for a longer duration – as many as 45 years – now there are highly flexible plans in the market as well. These days, many insurers offer plans where you can withdraw the money within the first five years without any surrender charges.
Guaranteed Return Plans work for those who prefer the risk-free route and certain returns for their investments. These schemes also work for those investors who have a long-term horizon. Since such schemes help in creating a guaranteed corpus along with the benefit of insurance coverage, it is a good idea to allocate a part of your portfolio to such schemes to hedge against volatility in the rest of your portfolio. Moreover, as long as returns on FDs remain low, Guaranteed Return Plans come out as a viable choice to save for the long-term.
The author is Head-Investments at Policybazaar.com. Views expressed are that of the author.