width=620In comparison to bank FDs, guaranteed return products offer better returns on a tax-adjusted basis.

Amidst the fluctuating market scenario and low interest rate environment, people are in search of products with a promise of guaranteed returns. Over the last few years, there has been a significant drop in the interest rate offered by banks on fixed deposits which has put financial planning, especially of the middle-class Indian, at a great risk. The rate reduction in interest given on bank deposits has greatly impacted the financial planning of millions of households.

For Indian investors, short-term market volatility is not a matter of great concern as they mostly prefer long-term investment products. The actual risk lies in falling woefully short of the required corpus for one-time expenses like child’s education, marriage or even own retirement. For unprecedented times like these, life insurance products that offer guaranteed returns are the best solution. It is always important to have a clarity on the amount of return expected after a fixed period of time. Moreover, the life protection element under these products ensures that even if the policyholder dies, the dependents will always get the promised money.

Avoid Unprotected Savings

In the last 6 months, the Repo Rate has reached at a seven-year low of 4 per cent. For investors relying on bank fixed deposits for long-term savings, this means that bank deposits may fail to provide you with adequate returns. Moreover, the story doesn’t end here! Several economists and analysts are expecting further reduction in the repo rates in the coming few years, resulting in the possibility of further reduced returns.

If you talk about numbers – the difference between the annual interest earned on a bank fixed deposit of Rs 5 lakh – as the rate of interest slipped from 8.75 per cent to 5.50 per cent in the last 3 years – is about Rs 15,000 in just one year. Over a period of 20 – 25 years, the constant drop in interest rates will significantly alter your financial savings plan. The declining interest rate on bank fixed deposits poses great risk to customers with low risk taking appetite, limited understanding of the stock market, and especially those settled in non-metro locations.

Guaranteed Return Products

Considering the ongoing market scenario, the time is right for customers to understand and evaluate alternate investment options. One such category of products that customers must make a part of the investment kitty is Guaranteed Returns Plans that promise guaranteed returns, irrespective of the changes in market conditions and interest rates. Guaranteed Returns Plans come with a ‘life protection’ component that makes these plans better than the rest in the niche.

In comparison to bank FDs, guaranteed return products offer better returns on a tax-adjusted basis. Apart from a promise to give a fixed return, these plans also come with the guarantee of payout in case of the sudden demise of the policy holder. With these plans, there is nothing left to chance when it comes to accumulating an adequate corpus and providing financial protection to your family. A guaranteed return product also gives you initial tax benefit, fixed and tax-free returns, and a life protection cover. When the life assured dies during the term of the policy i.e. before date of maturity, proceeds under the policy are payable as a claim to the nominee.

Buy Online to Earn Extra Income

When planning to invest in guaranteed return plans, it is always suggested to buy online as guaranteed return plans sold online come with a plethora of benefits for the customers. The most sought-after benefits of buying such plans online is that you receive an extra payout on the corpus invested in comparison to plans bought offline. For instance, say you invest Rs 10,000 per month for 10 years under ICICI Prudential Life Insurance’s Guaranteed Income for Tomorrow plan.

Now, if you buy this plan online, you will receive a monthly payout of Rs 9,469 which comes to Rs 1,13,628 annually, but if you buy the same plan offline, you will receive a monthly payout of Rs 9,239, which comes out to Rs 1,10,868 annually. When buying the plan online, you receive Rs 2,760 more per year and over a period of 10 years, you receive approximately Rs 27,600 more than offline plans. At maturity, for a plan bought online, you receive a total sum of Rs 11,36,330 while the same plan bought offline gives you Rs 11,08,622 at maturity. When buying guaranteed return plans online, the customer receives approximately 2.5 per cent extra income on the corpus invested.

Similarly, say, you invest Rs 10,000 per month for 10 years in HDFC Life’s Sanchay Plus guaranteed returns plan. Now, when you buy this plan online, you will receive a monthly income of Rs 8,946 over a monthly income of Rs 8,433 when bought the plan offline. Over a period of 25 years, you receive a total payout of Rs 39,19,875 when you buy the plan online and Rs 37,29,825 if you buy the plan offline. By investing in the plan online, you receive Rs 1,90,050 extra than offline as the total payout amount.

(By Vivek Jain, Head-Investments, Policybazaar.com)

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