Investment as a term has often been associated only with a risk-reward concept. This essentially means that the investor has to bear a certain amount of risk that is directly proportional to the returns they will reap in the future. Quite naturally, this also means that the markets can go downhill too and one may end up with a loss instead. The Indian market, however, displays a varied risk appetite from its troop of investors and quite often, a lot of them don’t want their hard-earned funds to be subjected to market risks.
Where a lot of people want their wealth to grow, not many know the kind of investment options that would best suit their requirements and investment behaviour. Many of them might want to dip their toe in the markets and see how it works for them. As the investment market evolves, it now caters effectively to risk-sensitive investors with options that can fetch them good returns at no risk. One such popular option is the guaranteed returns plan.
Here’s outlining of the features and benefits of these plans:
Higher tax-free returns
Traditionally, a host of risk-averse investors would turn to fixed deposits (FD) as a safe haven for their funds. While this was a great option until seven to eight years ago, the declining rate of interest on FD has diminished its investor appeal now. Not to mention, this average 5%-5.5% interest is also subject to taxation.
Now, if we compare it with a savings instrument like the guaranteed returns plan, one can get up to 6-7% by investing in this plan. In fact, if we talk about the new-age plans that are available in the market, a 30-year-old can gain up to 7.2% on their investment. This is a considerably higher rate of return, not just in comparison with FD, but also higher than other traditional options like the PPF. The fact that these returns are completely tax-free is a major USP of these plans. Also, to top it off, you can also claim a tax deduction due to the life insurance component in this plan. In the long run, a guaranteed returns plan is a win-win situation for the investor.
Resistant to market volatility
The best part about a guaranteed returns plan is that it operates independently of the market situation. Irrespective of market fluctuations or volatility, the rate of return is locked at the time of policy purchase and it remains constant for the entire policy term. This is especially helpful at a time when several domestic and foreign factors continue to impact India’s market, be it fuel prices, inflation, Fed rate hike or geopolitical unrest.
These factors impact the willingness of any average investor, regardless of their risk appetite. Even if the interest rates dip further or stock markets crash, your funds will remain unaffected till the time your policy matures. This is especially useful for a large chunk of investors who don’t know the ebb and flow of a volatile market or how to navigate through it.
Ease of liquidity and flexibility
When we talk about investing in a guaranteed returns plan, investors are advised to exercise patience and go headlong for the long term. While one can lock in their funds in these policies for up to 45 years, they should at least have a view of 20-25 years to make the most of these plans. The accumulated higher interest over the years can greatly help the investor with wealth creation and in meeting life’s non-negotiable goals. However, the plans are also flexible enough to conform to the investor’s choice of early withdrawals. One can even withdraw as early as five years, depending on the plan type and incur no surrender charges. On the other hand, the plans also have flexibility with respect to the frequency of payments and type of income received.
(The writer is the the Head - Of investments, Policybazaar.com)