Thinking About a Guaranteed Return Plan? Here Are Some Things To Consider

In the ever-changing landscape of financial investments, one option that has gained traction over the years is the Guaranteed Return Plan. However, they provide lower returns than other investment schemes. Vivek Jain, head of investments at Policybazaar.com, describes it as a noteworthy investment avenue that stands as a shield against the unpredictable tides of the market. "Guaranteed return plans stand out as a worthy investment option for every kind of investor. It provides a unique layer of protection against the uncertainties of the market. When you acquire a guaranteed returns policy, the rate of return is set and remains unchanged to the fluctuations in the market. Moreover, your principal investment remains not only secure but also untouched by market conditions, offering a reassuring level of stability."

Let's delve into the world of Guaranteed Return Plans and weigh their pros and cons to help you make an informed decision about your financial future.

The Assurance Of Stability

One of the most appealing aspects of Guaranteed Return Plans is their steadfastness. When you opt for such a plan, the rate of return is fixed and remains immune to the market's turbulence. Your initial investment, or principal, remains secure and untouched by the whims of market conditions. This unshakable stability provides peace of mind to investors, whether newcomers or seasoned players.

Tax Benefits That Shine

The distinction becomes evident when comparing Guaranteed Return Plans to more traditional options like Fixed Deposits (FDs) and Public Provident Funds (PPF). While the latter options subject your returns to market fluctuations and taxation, Guaranteed Return Plans offer a far more favourable scenario. Not only are the returns assured, but they are also tax-free. These plans can yield returns ranging from an impressive 7.2 per cent to 7.5 per cent, a rate virtually unheard of in traditional investments.

To sweeten the deal, returns from Guaranteed Return Plans remain tax-free up to a yearly premium of Rs 5 lakh. This generous tax exemption maximizes the growth potential of your investment, ensuring that you retain more of your hard-earned money.

Adaptability For Changing Priorities

One of the standout features of Guaranteed Return Plans is their versatility. They are an excellent choice for short-term and long-term investments, making them suitable for investors with evolving financial goals. Whether you're saving for a significant life event, your child's education, or your retirement, these plans can be tailored to align with your changing priorities.

Kapil Mehta, co-founder of SecureNow, emphasizes that the main advantage of these plans lies in their ability to guarantee returns for a more extended period compared to fixed deposits. "This extended guarantee period is particularly valuable for individuals who seek assurances over a timeframe that spans beyond five years," he says.

The Downside: Low Guarantees

As with any investment option, Guaranteed Return Plans come with their downsides. "The primary drawback is the relatively low guarantees they offer. Typically, the returns from these plans hover around half of the government securities rate, translating to approximately two to five per cent in today's market. This rate is often lower than what you can secure through fixed deposits," says Mehta.

Additionally, it's worth noting that these guarantees can be expensive to obtain. The premiums required to enjoy these guarantees are often relatively high.

Guaranteed Return Plans provide a reliable investment haven, offering unmatched stability and tax benefits. However, their lower guarantees and potential expense must be weighed against these advantages. Whether or not they're the right choice depends on your specific financial goals, risk tolerance, and time horizon.

As with any financial decision, it's advisable to consult a financial advisor who can help you assess your unique circumstances and guide you toward the investment strategy that best aligns with your objectives. In the ever-evolving world of finance, being well-informed is your strongest asset.