When the market has undergone a massive correction, investors are looking for high- return investments that can negate the impact on their long-term financial goals. Among various investment schemes, investors are advised to invest in assured return plans offered by insurers, say wealth advisors.
Some of the popular guaranteed plans offered by insurance companies include Bharti AXA Life Guaranteed Wealth Pro, HDFC Life Sanchay Fixed Maturity Plan and Edelweiss Tokio Life Premier Guaranteed Income, among others.
These plans offer returns which are marginally higher than those of fixed deposits (FDs). Aditya Birla Sun Life Insurance, for instance, recently launched the ABSLI Fixed Maturity Plan that offers returns of up to 6.3-6.4 per cent.
"The prevailing fixed deposit rates are in and around 5 per cent only and that too are not fixed. ABSLI Fixed Maturity Plan on the other hand is a guaranteed product designed to cater to investment needs of policyholders," said Kamlesh Rao, MD & CEO of Aditya Birla Sun Life Insurance at the time of launch.
“One of the options for long term horizon could be assured return products and could be considered for a portion of portfolio,” Abhishek Dev, Co-Founder and CEO Epsilon Money.
Long lock-in period
As they say there ain’t no such thing as a free launch. One of the key put-offs in these assured plans are long lock-in period they are tied to.
“Nothing comes free in this world. While assured returns offer benefit, they come with long lock-in periods. Their costs and yields should be considered vs other options. A good way to reduce risks in portfolios and benefit from market corrections is to maintain a well-structured and well diversified portfolio across asset classes and product types, with relatively higher exposure to fixed income for low risk-customers,” says Dev.
S Sridharan, founder and principal officer, Wealth Ladder Direct says instead of investing in insurance plans, investors with low-risk appetite can invest in post office savings scheme or PPF.
He also says that surrendering the policy prematurely is not a good idea since you will have to pay a heavy penalty and could get only a portion of the premiums paid.
“Some of these insurance plans offer a maximum of 6.5 percent guaranteed return. But for that, investors have to pay premium for a minimum of 10 years. If they stop paying during this period, they will stand to get only up to 40 percent of the paid premium. So, liquidity is a problem in these plans for the investors who see them as an investment. Instead, it is better to invest in the post office savings schemes or PPF,” said Sridharan.
Notwithstanding these shortcomings, investors who want a guaranteed return product can opt for these plans so long as their returns align with their financial goals
“Given that the IRR will be affected by a slew of factors such as age and tenure, investors should ask about the specific IRR and also whether the proceeds will be taxable or not,” says Deepesh Raghaw, founder of Personal Finance Plan.