Often times, when retail investors with not-so-high risk appetite explore investment avenues, they juggle between fixed deposits (FDs) and PPF while some also explore debt mutual funds. With insurance providers, too, churning out guaranteed returns products lately, the investment universe of retail investors is nothing but expanding rapidly.
A number of insurers have recently rolled out assured return plans. Aditya Birla Sun Life Insurance offers assured fixed maturity plan which gives a higher return than what a fixed deposit (FD) scheme offers. During a press interaction, Aditya Birla Sun Life Insurance MD & CEO Kamlesh Rao stated that the insurance product is aimed at the 30-45 age group people who are fixed deposit holders.
Also, Max Life Insurance offers assured wealth plan that helps policyholders to fulfill goals such as children’s education, marriage and retirement. It gives guaranteed lump sum maturity benefit to enable investors meet their financial goals.
Capital protection with fixed returns
Insurance experts believe that these guaranteed returns insurance plans offer capital protection while giving stable returns. In other words, investors can remove the element of uncertainty by investing in them since their returns are locked before hand without having to rely on the market situation at a later stage.
“For decades, investment is synonymous with the risk-reward concept while now, things have changed to a great extent. After witnessing the uncertainties seen in unprecedented times, the majority of investors have been inclined towards investment options that can fetch them good returns at no risk. One such plan is Guaranteed returns plan that offers capital protection and stable returns,” said Vivek Jain, head of investments at Policybazaar.com.
He further adds that these schemes offer returns up to 7.2 percent and that too tax-free, thus further incentivising investments in these instruments.
“Savings instruments like the guaranteed returns plan offer tax-free returns which make them a win-win investment option for the new age investors. For instance, if a 30-year-old invests in this new-age (Guaranteed returns) plan he/she can gain up to 7.2% on their investment. This is a considerably higher rate of return, not just in comparison with FD, but also higher than other traditional options like the PPF,” adds Mr Jain.
Are they the right bet for retail investors?
Notwithstanding high returns offered by these plans, not everyone thinks that insurance and investment ought to be seen through one lens.
“Ideally risk and investment should be seen separately. You are likely to get better returns if you buy a term plan for protection and invest the rest of the money in mutual funds instead of buying a traditional plan with capital guarantee,” says Naval Goel, CEO and founder of PolicyX.
Abhishek Dev, Co-Founder and CEO Epsilon Money, too, echoes similar sentiments when he says: “While assured returns offer benefit, they come with long lock-in periods. Their costs and yields should be considered vs other options.”
Some, however, bat for other fixed return schemes over insurance plans such as post-office savings schemes.
“Instead of investing in insurance plans, investors with low-risk appetite can invest in post office savings scheme or PPF,” says S Sridharan, founder and principal officer, Wealth Ladder Direct.