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With spiralling inflation, here’s how to secure guaranteed returns on your investments

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The current times have made a compelling case for not letting one’s money sit idle in the bank accounts and rather making thoughtful investments to help withstand the growing pace of inflation.

Retail inflation, which continued to soar for quite some time, peaked at 6.95% last month. The figure stands at an all-time high of 17 months and is well beyond the RBI’s former target of 4.5% for 2022-23 and even surpasses the revised target of 5.7%. These soaring prices have a direct impact on an average household and its financial planning. The current times have made a compelling case for not letting one’s money sit idle in the bank accounts and rather making thoughtful investments to help withstand the growing pace of inflation.

Nevertheless, investments and associated risks might not be everyone’s cup of tea. Hence, people reserved their savings only for fixed deposits for a long time. While FDs used to be an essential part of the average Indian’s financial portfolio, the declining interest rates have made people look elsewhere to park their money. If you look at it strategically, one is not only getting a lower return on their hard-earned money but in fact earning a real negative interest. If this makes you wonder about better options that get you higher returns but do not carry the market-linked risks, look no further than guaranteed return plans. Let’s understand in detail how this instrument works and why one should consider investing in it as CPI points upwards.

Your go-to instrument to beat inflation and real negative interest

The primary purpose of saving or investing your money is to gain interest on it over a certain period of time and accumulate a higher amount in the end. FDs, after all, did offer around 8.5% return which helped investors achieve their goals. Now, the falling return rate on FD currently stands around 5 to 5.5%, which isn’t enough to beat the rising inflation rate. It, in fact, fetches real negative interest. However, this gap has further widened with a record 6.95% inflation rate, where the real negative interest rate now stands at around -1.45 to -1.95%. To top it off, the interest you earn is taxable too, further depreciating your return rate.

Let’s now look at the alternative, ie guaranteed return plans. One can earn around a 6 to 6.5% return on these plans. Plans like Bajaj Allianz’s Assured Wealth Goal plan offer up to a 6.46% rate of interest on an annual premium of Rs 5 lakh for 10 years, subject to terms and conditions. Another plan, Max Life’s Smart Wealth Plan, provides up to 6.20% interest for the same terms of investment. Also, the return earned is tax-free which makes it an attractive investment avenue.

Higher returns at zero market-linked risk

If we talk about the current market conditions, there are several factors causing volatility, with rising inflation being one of them. The risk-agnostic nature of these plans makes sure that your funds are safe and secure, unaffected by market fluctuations. Investing in guaranteed return plans offers the security of keeping your original investment amount intact. Also, you lock the return rate at the time of investment that remains unchanged, no matter what the market might be going through. These plans are, of course, the perfect choice for the risk-averse investor. But they are also a great fit for all kinds of investors, given the higher, tax-free return rate and zero associated risks. Furthermore, you can lock in your funds in FD for a maximum of 10 years, but these plans allow a lock-in period of up to 45 years. This makes your money ripe for reinvestment as well.

What’s more: Insurance component, greater flexibility and ease of liquidity

The life insurance element in guaranteed return plans is a huge incentive to invest in them. Especially at a time when the pandemic is far from over and new variants continue to pose threat to life and health, insurance is a mandatory investment. Aside from the benefits that guaranteed return plans offer to the investor, they also cast a safety net for the dependents in case of the unfortunate death of the policyholder. Also, one can attach riders like critical illness or accidental disability to the policy. The life insurance component in the policy also offers the investor tax benefits which further add up to their income.

Moreover, the plans have now become more flexible to provide ease of liquidity to the investor. Though it is ideal to lock one’s money for the long term, if one wishes to withdraw their money sooner, they can do so within the first five years without any surrender charges. Investors also enjoy the flexibility in terms of the amount they invest and the time period they choose. They can also decide the frequency of the income received and whether they want to get a recurring income or lump-sum benefit.

(By Vivek Jain, Head – Investments, Policybazaar.com)

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