Guaranteed Return Plans vs Fixed Deposits: Which is a better investment option for you?

Traditionally, people have had an invariable preference for fixed deposits (FDs) to secure the future of their children or to achieve their financial goals. Consistent interest rates and zero market-related risk made FDs an attractive way to lock in money. This arrangement worked perfectly until about ten years ago. The return offered varied between 7% and 9%, resulting in a reasonable corpus at the end of the tenure. But then India’s economic conditions changed dramatically and prevailing FD rates saw a sharp cut to an all-time low of ~5%.

Therefore, those looking for a viable and safer alternative may want to consider a guaranteed return plan. It ticks the box to be primarily an investment for risk averse people, with the added benefits of the life insurance element. In addition, it promises a guaranteed return without being affected by market volatility. It therefore offers the best of both worlds.

Guaranteed return plans are a suitable product for salaried workers, especially individual bread earners, and can be purchased by anyone between the ages of 18 and 60. Moreover, this plan is an ideal means of savings for an appointment of 10 to 45 years. It is also an optimal means of achieving long-term future goals such as a child’s higher education, marriage and even retirement planning. In addition, it offers a guaranteed return that is fixed at the time of purchase. This particular aspect is in contrast to fixed deposits, where returns fluctuate, are subject to taxation and are therefore relatively lower.

For example, if a 35-year-old invests an annual premium of Rs 5 lakh in Bajaj Allianz Life Assured Wealth Goal for a 10-year premium payment term, he will get a return of 6.41%. For existing customers, however, the rate will rise to 6.46%. Another policy to consider is the Max Life Smart Wealth Plan, which offers a 6.20% rate of return for comparable investment terms. FD, on the other hand, collects about 5% taxable interest.

Another factor that makes them ideal is their flexibility and customization. The policyholder can adjust the term to ensure that current and future needs are met. For example, you can choose to invest monthly from Rs 2500 to Rs 2 lakh or even choose an annual investment. An option is also available for a one-off investment or for a term of 5, 7 or 10 years. Likewise, you can choose to receive the income monthly or annually.

What sets these plans apart from other investment options is the fact that they also provide a safety net for the next of kin in the event of the accidental death of the policyholder. The policy offers a life insurance policy of 10 times the annual premium, whereby the surviving relatives are financially indemnified. Therefore, without a doubt, preference should be given to a plan that fully protects the dependent than just delivering investment returns.

Aside from these benefits, for most people, investments are as much a reason to take advantage of the plan’s features as they are to reap tax benefits. For example, under guaranteed return schemes, you can reduce your taxable income under Section 80C of the Indian Income Tax Act due to the life insurance element. In addition, the payout of the bonus plus the term to the policyholder and the payout of the life insurance to the beneficiaries are tax-exempt under Section 10(10D) of the Act. These provide a significant amount of savings, with which you secure your future.

To summarise, in an already unpredictable market scenario dominated by forces like pandemic, inflation and political factors, the stability provided by a guaranteed return plan is a rare virtue. That’s why this easy-to-understand plan for those with a low risk appetite offers some exceptional elements that will ensure that the money grows while protecting our family’s financial security and all this, on your comfortable terms. But don’t forget to compare different plans online and also analyze them with fixed deposits to get a better understanding. As always, be sure to read the fine print carefully before making an investment decision.

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

Disclaimer: This is the personal opinion of the author. Readers are advised to consult their financial advisor before making any investment.

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