Investing in guaranteed return plan is a smart choice

Hyderabad: An ideal investment plan is one that gives you high returns along with tax benefits so that you can beat inflation and improve your purchasing power over time. The unique proposition that a guaranteed returns plan offers is its risk-free nature of returns, irrespective of the market volatility. Higher, tax-free and guaranteed returns on investment make this plan a popular choice among investors.

"In new-age plans, the returns run as high as 7.5 per cent, which is quite lucrative for long-term wealth creation, especially if we compare it with the returns on other traditional investment options available in the market. The life insurance element in this product not only helps with tax-saving but also offers protection for dependents," said Vivek Jain, Head – Investments, Policybazaar.com.

These features make guaranteed returns plans a wholesome investment avenue. In the case of FD, the family has to either wait for maturity or have to accept a lower return for premature withdrawal. In the case of recurring deposit plans – like RD or PPF, the return will be calculated on the amount deposited till the demise of the investor and not on the intended investment.

Hence, full maturity value will not be received unless the dependents are able to continue the investment. But for the guaranteed or fixed return plans offered by various insurance companies, even in case of discontinuation of investments due to the unfortunate demise of an investor, full maturity value will be paid to the nominee.

There are several benefits of the guaranteed or fixed return plans compared to FD, RD and PPF. As the investments are made in lumpsum in the case of FD, the demise of an investor during the investment period won't impact the investment. But FD interests are taxable and in case of premature withdrawal, the nominee or the dependents would get a lower return.

With periodic premium payments, guaranteed or fixed return plans are more similar to RDs. However, in case of RD, the investments will stop in case of the unfortunate demise of an investor, resulting in lower maturity value. Due to the insurance cover, the nominee of a guaranteed or fixed return plan will get the full maturity value without any tax liability even in case of the unfortunate demise of an investor.

The interest rates offered on PPF are generally higher than the prevailing FD and RD rates. Moreover, investors get tax benefits on investments as well as on interest and maturity value. The guaranteed or fixed return plans also enjoy the EEE tax status like PPF and the rates offered on some plans are also higher than FDs and RDs.

However, the investments in PPF would stop in case of the unfortunate death of an investor and the return will be calculated on the amount deposited till the demise of the investor. However, in case of guaranteed or fixed return plans, the nominee will get the full maturity value even in case of premature death of the investor.

The PPF rate has been fixed at 7.1 per cent for the quarter ending September 2022 which gets revised quarterly. In the case of guaranteed return plans, an investor can get up to 7.2 per cent returns which are fixed for 10 years. The guaranteed or fixed return plans not only have the best features, some of them also give higher rates of returns to the investors.