How Guaranteed Savings Plan Justify Your Investment Needs?

Guaranteed Return Plans in India are one of the best investment options in case you are looking for coverage + investment options. They give you financial security, an opportunity to grow your money and also life coverage. With a promise of guaranteed returns over a long period of time and the ability to choose from various payout options, they serve an important retirement planning and wealth creation tool.

Here is How Guaranteed Investment Plans Score on Important Factors Highlighted by Consumers While Ranking Investment Options –

Minimum Investment Size – With premiums starting as low as Rs 2500 per month and the ability to pay monthly automatically, guaranteed return plans allow everyone to invest and obtain financial security for their loved ones. Only mutual funds with a starting size of Rs 500 only have a lower investment threshold. Score – 4/5

Safety of Money – Guaranteed Return plans backed by top insurance firms promise complete safety of money and peace of mind. There has been no instance of any insurance company collapsing and not able to pay back investor money in India. Hence, your money is completely safe if you invest in a guaranteed return plan. Score – 5/5

Tax Benefits – Guaranteed Returns plans are one of the most tax-efficient instrument. They come under the “EEE” tax-exempt status under section 80C and Section 10 (10D) of the Income Tax Act. The EEE status implies that there is a tax benefit

1. At the time of initial investment.
2. On the Returns Earned.
3. At the time of final withdrawal.

All investment plans linked to insurance companies come with the EEE exempt status. This benefit is not found in most other investment instruments. Score – 5/5

Trust – Insurance companies in India are backed by leading banks and financial institutions and are also regulated by IRDAI – a government body. In case of any false promise, misleading advertisements, misselling etc, there is a grievance redressal mechanism and insurance ombudsman to tackle complaints. Hence, the level of trust in Insurance companies is very high. You can completely trust the insurance company to honour everything written in the policy document. You should beware of any false promises of bonuses, extra returns promised by agents since they are not liable to be honoured by the insurer. Score – 4.5/5

Coverage Amount – One of the primary reasons to buy insurance should be the coverage amount offered by the plan. In addition to the returns on investment, guaranteed return plans also offer life insurance coverage. This is normally as a multiple (10x) of the annual premium you pay. Exact coverage amount and the terms are different for each policy and are defined in the policy document. Normally, if your annual premium is Rs 1,00,000, you can expect to have a life insurance cover of Rs 10 Lacs. Pure term insurance plans offer better coverage at a low premium. However, term insurance plans do not give out anything at the end of the maturity period. Score – 3.5/5

Flexibility – Insurance plans are mildly flexible in the sense that they allow you to customize your investment and payout schedule while choosing from a variety of options. However, there is very less flexibility in case you want to change your policy mid-way. Hence, it is important to take an investment plan which suits your budget and future income. You shouldn’t opt for a very high premium amount in case it puts a strain on other finances.  You can choose to pay the premium amount monthly, quarterly or annually. You can also choose the duration of the policy. Premium paying term can be as low as 5 years to as high as 20 years. Similarly, payout terms can be as follows-

1. Lumpsum: You get the entire maturity amount at the end of the policy period
2. Annual Income: You get an annual income for a fixed number of years at the end of the policy period
3. Lumpsum+Annual Income: You get some amount upfront while the rest as annual income for some years.
4. Life-Long Income: You get an annual income until you die. Score – 4.5/5

Policy Tenure – Investment plans allow you to choose your policy tenure at the inception of the policy, but offer little flexibility in case you want to change it later. You can choose from 5 years till 20 years. While Mutual funds allow you to start or stop your investments anytime, it is not possible to do so in case of guaranteed return plans without paying high penalties.

However, by making you disciplined and a long compulsory investment tenure, guaranteed return plans create a savings habit in you and ensure that your financial objectives are met. Score – 4.5/5

So before you make an investment decision, it is important that when you are selecting an avenue of investment you need to understand various aspects associated with the investment and whether it aligns with your financial goals and needs.