An ideal investment plan is the one that gives you high returns along with tax benefits, so that you can beat inflation and improve your purchasing power over time.
But what would happen to an investment if the investor dies prematurely?
In case of Fixed Deposit (FD), the family has to either wait for maturity or have to accept a lower return for premature withdrawal. In case of recurring deposit plans – like RD, Public Provident Fund (PPF) etc, the return will be calculated on the amount deposited till the demise of the investor and not on the intended investment and 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.
Here are the benefits of the guaranteed or fixed return plans compared to FD, RD and PPF:
Guaranteed Return Plans vs FD
As the investments are made in lump sum in case of FD, 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 lower return.
Guaranteed Return Plans vs RD
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. On the other hand, 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.
Guaranteed Return Plans vs PPF
The interest rates offered on PPF are generally higher than the prevailing FD, 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.
Rate of Returns
The guaranteed or fixed return plans not only have best features, some of them also give higher rates of returns to the investors. For example Max Life Insurance is offering some fixed return plans with an IRR of over 7 per cent, while Edelweiss Tokio Life has a guaranteed return plan with an IRR of over 5 per cent.
“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%, 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. These features make guaranteed returns plans a wholesome investment avenue,” said Vivek Jain, Head – Investments, Policybazaar.com.
The following tables show some of the guaranteed or fixed return plans with better rate of returns than the prevailing FD rates:
So, if comes with better rates, guaranteed or fixed return plans offer the best benefits.