Invest In Plans That Offer Guaranteed Returns From Secured Investments

Annuity plans meet the long-term retirement needs of people with a decent corpus
Invest In Plans That Offer Guaranteed Returns From Secured Investments
Invest In Plans That Offer Guaranteed Returns From Secured Investments

As interest rates on bank Fixed Deposits (FD) and Public Provident Fund (PPF) – the two most sought-after long-term saving instruments – continue to slide down to a decade low, it is time to switch to products that promise guaranteed returns. The Public Provident Fund - which offered 11 – 12 per cent interest per annum in the 1990s, today merely gives 7.1 per cent interest. Similarly, the rate of interest on bank fixed deposits has fallen from 8.5 per cent in the year 2014 to 5.4 per cent in the year 2020. These interest rates are further expected to fall by 3 – 5 per cent in the next few years as the country evolves into a completely developed economy. With such low-interest rates on offer, customers are on the lookout for products that offer better returns for a period of at least 20 – 25 years. Considering the current market scenario, insurers that are offering a return between 5 – 6 per cent on the invested corpus are precisely serving the market need.

Invest in Guaranteed Return Plans

The guaranteed return plans come with an “exempt-exempt-exempt (EEE) taxation benefit” which means there is no tax on the corpus invested, on accrual, and the maturity/payout amount. These products are the best pick for investors across all ages in comparison to post-tax returns offered by banks in the current market scenario, guaranteed return products give better returns. For instance, the long-term deposit interest rate being offered by most government banks is 5.4 per cent. Now, for a customer falling in the 30 per cent tax bracket, the post-tax returns on the invested corpus would come out even below 4 per cent. The guaranteed return products offer better returns often promising maximum IRR - the annual rate of growth investment is expected to generate – ranging between 5.3 and 5.8. The customers investing in guaranteed returns plan even get a life cover equal to 10 times of the annual premium and this is why attract traditional FD investors. For instance, if a customer invests Rs 2 lakh annually, on the sudden demise of the customer, the dependents will get a sum assured of Rs 20 lakh.

Some of the prominent insurers offering non-participating products to the consumers include HDFC Life’s Sanchay Plus. Under this plan, if a 30-year old individual invests Rs. 5,000 per month with a policy term of 15 years and a payment term of 10 years, on maturity the consumer will get Rs 10.77 Lakh as a lump sum at an IRR of 5.61 per cent. Similarly, one may also choose to invest in Aditya Birla Capital’s Guaranteed Milestone Plan, wherein a 30-year-old individual by investing Rs 5,000 per month in a policy term of 20 years and a payment term of 10 years will get Rs 13.94 Lakh on maturity as a lump sum at an IRR of 5.51 per cent.

Annuity Plans – For A Secured Retirement

People who are retiring in the coming 8 – 10 years and are looking for a secured investment option that guarantees them fixed pension as a replacement of salary post-retirement for them Annuity Plans may be the answer. Under an annuity plan, you pay a lump sum in the accumulation period and get regular payments as long as you live or for a pre-specified fixed period. Annuity plans are specifically designed to meet the long-term retirement needs of people with a decent corpus for investment. An annuity plan allows you to lock-in the existing interest rate not just for a period of 10/15/20/25 years but your entire life. 

Best annuity plans available now

Amount invested: About Rs 10 lakh (without GST) Age 55Age 60
PlanBenefitsYearly pension (About)RateYearly pension (About)IRR (%)
HDFC Life New Immediate Annuity Plan - Life Annuity with ROP
Get lifelong pension. Lump sum amount returned to nominee
IPru Life Immediate Annuity Plan - Life Annuity with ROP60,0246.0%60,4066.0%
SBI Life Annuity Plus - Life Annuity with ROP54,4995.4%55,5135.6%
Tata AIA Life Smart Annuity Plan - Life Annuity with ROP57,8255.8%58,2385.8%
Max Life Guaranteed Lifetime Income Plan - Life Annuity with ROP59,8806.0%60,0806.0%
PNB MetLife Immediate Annuity - Life Annuity with ROP61,2956.1%61,5146.2%
Kotak Lifetime Income Plan - Life Annuity with ROP56,9905.7%57,5035.8%
Canara Pension4Life Plan - Life Annuity with ROP58,7015.9%59,3845.9%
IndiaFirst Life Guaranteed Annuity Plan - Life Annuity with ROP62,1106.2%62,7216.3%

Say, if you are a 60-year-old individual and you buy an annuity plan where the annual payout comes to 6 per cent of the amount you invested. Now after a decade or even more, if the rate of interest declines to 4 – 5 per cent, you will still continue to receive a payout at 6 per cent interest rate up to your policy term – the one at which you invested. Moreover, annuity plans are an excellent way to tackle reinvestment risk and reduce the longevity risk as these plans guarantee you a fixed income for life/until your policy term.

The author is Head-Investments BU,

DISCLAIMER: Views expressed are the authors' own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.

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