Why guaranteed return plans should be in your investment portfolio


Life is full of uncertainties. This fact has become even more apparent over the past two years, which has seen the world grapple with a deadly virus, resorting to full-scale lockdowns and other extreme measures. These implications have also been felt in the financial world with the collapse of stock markets, commodity prices also going through extreme volatility and the overall economy of countries and households going through tumultuous times. In such a scenario, it is prudent to invest in products that can guarantee some stability and financial certainty.

The certainty of a guaranteed return on your investments, regardless of extreme stock and commodity market volatility, is something the Indian investor has often sought. This is the reason why fixed deposits and provident fund schemes are popular with Indian investors. Here, we explore why guaranteed return plans should also be in your investment portfolio.

What are guaranteed return plans?

But first, what exactly do we mean by guaranteed return plans? These plans are offered by insurance companies in which all you need to do is pay a fixed premium on a monthly or yearly basis for the duration of the plan. Once the policy matures, you begin to receive 100% 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 have paid, the insurance coverage you have chosen and the length of time you have made premium payments. Under these plans, you can choose to receive payments for a fixed number of years or opt for income for life. Additionally, you have the option of choosing to receive the income on an annual rather than a 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 a regular income goes a long way in planning your future and achieving your goals. Another certainty provided by these plans is that if something unfortunate should happen to you, your family’s financial security is covered. Indeed, these plans provide guaranteed long-term income as well as life coverage equal to 10 times the annual premium.

In addition, these plans come with substantial tax benefits. Not only is the amount you invest eligible for Section 80C deductions under the Income Tax Act, but the amount at maturity is also completely tax exempt. In addition, your investments are protected from market uncertainty and volatility. Whether interest rates on fixed deposits drop or stock markets suffer another crash, the interest rates you locked in when purchasing a guaranteed return plan remain the same, and so does your income. future of the plan.

More flexibility and ease of liquidity

Although these plans aim to lock in your money for a longer term – up to 45 years – there are now very flexible plans on the market. These days, many insurers offer plans where you can withdraw the money in 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 programs also work for investors who have a long-term horizon. Since these schemes help create a guaranteed corpus with the benefit of insurance coverage, it is a good idea to allocate part of your portfolio to such schemes to hedge against the volatility of the rest of your wallet. Additionally, as long as FD yields remain low, guaranteed return plans appear to be a viable choice for long-term saving.

The author is Head of Investments at Policybazaar.com. The opinions expressed are those of the author.

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