Many people seek secure, long-term investment options to avoid short-term market fluctuations. They also consider important life goals like retirement, education, marriage, or buying a home. The decrease in fixed deposit interest rates in recent years has affected financial planning for many.
A superior option that provides a fixed interest rate while offering higher returns is a guaranteed income plan. These plans offer a return of 6% to 6.5%, surpassing the previously mentioned options. The interest earned is not taxable, further boosting your gains. Your funds are shielded from market risks for about 40-45 years, providing stability in the near future.
Now, let's delve into how guaranteed income plans function.
How Guaranteed Income Plans Operate
Enhanced, Tax-Free Returns
When comparing options, we often focus on the stated rate of return, overlooking hidden factors like inflation and tax. These factors significantly affect the actual value of your money. Over the last decade, fixed deposit interest rates in India have dropped from around 9% to nearly 5%. With rising inflation, keeping funds idle in a bank account leads to losses. This impacts long-term financial goals across all sectors.
Adding taxes further diminishes returns. For instance, savings accounts offer rates ranging from 3% to 4%, insufficient to combat inflation. Standard fixed deposits yield about 5% interest. As this is a long-term option, inflation erodes savings over time, and returns are subject to yearly taxation.
Guaranteed plans step in to address this.
Flexibility
While it's recommended to take a long-term approach with guaranteed return plans, some modern plans offer investors more flexibility. While these plans are known for locking in interest rates for up to 45 years, some allow for early withdrawals. Understanding these options is crucial. For instance, under certain plans, you can receive income for 45 years starting from the sixth year at a tax-free return rate of 5.74%. This exceeds the return of a taxable fixed deposit.
If you choose to surrender your policy within the first five years, you'll receive your initial investment without any surrender charges. Surrendering during the income period still results in a profitable return, albeit at a discounted rate of 7.5%. This plan provides significant flexibility and benefits for investors.
Insurance Amid Uncertainty
Guaranteed return plans stand out for including a life cover component. This combination ensures financial security during your lifetime and establishes a strong safety net for your dependents in the event of your passing.
In uncertain times, these plans offer a crucial layer of protection. They provide a life cover of 10 times the annual premium, ensuring financial support for your loved ones in case of your untimely demise. Additional riders like critical illness or personal accident cover can further bolster your protection.
Hedge Against Market Volatility
Market upheavals in recent months have demonstrated the need for stable investments. Guaranteed return plans offer a safe haven. They guarantee a return on your investment with zero market risk. Unlike provident funds or fixed deposits, the rates here won't change during the contract period. You can invest for up to 45 years, ensuring a longer, more secure investment period.
Early investment maximizes benefits and allows you to navigate life's milestones with confidence. You have the option to receive a recurring income or a lump sum benefit.
In Conclusion
Guaranteed return plans embody the principle of simplicity in investing. They offer a fixed rate of return, the ability to lock in for extended periods, tax-free interest, and minimal risk to your invested funds. These plans are a strong alternative to traditional options like fixed deposits, particularly for risk-averse investors.
If you're seeking higher returns, you can diversify by allocating a portion of your funds to guaranteed return plans. Be sure to carefully review policy details and terms and conditions.
With online marketplaces, purchasing a policy has become more convenient. You can also save money by buying online. With numerous options at your fingertips, you can compare and choose the best deal.
