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

Traditionally, people had an invariable preference for fixed deposits (FDs) to safeguard their children’s future or to meet their financial goals. Consistent interest rates and zero market-linked risk made FDs an attractive avenue for locking in one’s money. This scheme functioned perfectly well until about a decade ago. The rate of return offered ranged between 7% and 9%, which resulted in a reasonable corpus by the end of the tenure. But then, the Indian economic conditions changed drastically, and the prevailing FD rates saw a steep cut to an all-time low of ~5%.

Hence, those looking for a feasible and safer alternative can consider a guaranteed return plan. It ticks the check-box of primarily being an investment for the risk-averse, with the added benefits of the life insurance element. Moreover, it promises a guaranteed rate of return without getting impacted by market volatility. It, therefore, offers the best of both worlds.

Guaranteed Return Plans are an apt product for salaried people, especially solo bread earners, and can be purchased by anyone between the age bracket of 18 and 60 years. Additionally, this plan is an ideal saving tool for tenure as long as 10 to 45 years. It is also an optimal means to meet future long-term goals such as a child’s higher education, marriage, and even retirement planning. In addition, it provides a guaranteed return that is fixed at the time of purchase. This particular aspect is opposed to fixed deposits, where the rate of return fluctuates, is subject to taxation, and therefore, is 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 premium payment term of 10 years, they will get returns at 6.41%. However, for existing customers, the rate will be as high as 6.46%. Another policy that can be considered is the Max Life Smart Wealth Plan which provides a return rate of 6.20% for similar terms and conditions of investment. FD, on the other hand, will fetch approximately 5% taxable interest rate.

Another factor that makes them ideal is their flexibility and customization. The policyholder can make adjustments to the term to ensure the present and future needs are secured. For instance, you can choose to invest anywhere from Rs 2500 to Rs 2 lakh monthly or even choose an annual investment. Also, there’s an option available for either one-time investment or investing over a term of 5, 7 or 10 years. Similarly, you could choose to receive the income monthly or annually.

What sets these plans apart from other investment options is the fact that they also cast a safety net for one’s dependents in case of the policyholder’s unfortunate demise. The policy offers a life cover that is 10 times the annual premium, wherein it safeguards the dependent financially. Hence, a plan that protects the dependent wholly than solely delivering returns on investment should undoubtedly be preferred.

Other than these benefits, for most people, investment is as much a reason for benefitting from the features of the plan as it is to attain tax benefits. Thus, under guaranteed return plans, you can reduce your taxable income under Section 80C of the Indian Income Tax Act due to the life insurance element. In addition, the bonus plus maturity pay-outs to the policyholder and the life cover pay-out to the beneficiaries are tax-exempt under Section 10(10D) of the Act. These make for a considerable savings amount, thereby securing your future.

To outline, in an already unpredictable market scenario that is governed by forces like pandemic, inflation and political factors, the stability offered by a guaranteed return plan is a rare virtue. Hence, this easy-to-understand plan for those with a low-risk appetite offers some exceptional elements that assure growing the money while protecting our family’s financial security and all this, as per your comfortable terms. But be mindful of comparing various plans online and also analyzing them against fixed deposits to get a better understanding. Like always, over and above, read the fine prints carefully before making any 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.