Need to Buy the Right Investment Product

Vivek Jain, Investment, Business Unit Head, Policybazaar.com

We are in the amidst one of the biggest crisis of the century! The COVID-19 pandemic continues to spread across the globe at a dizzying pace, with almost 38 million people infected and over 1 million deaths globally. Apart from everything else, the coronavirus pandemic continues to wreak havoc on the global economy too, with millions of people around the world out of jobs.

This high market volatility is likely to continue until the pandemic reaches manageable levels. However, the good part is that the stock market remains open for business, and it has seen historically dramatic swings in the last 8 months.

For those who are fortunate enough to receive a steady pay even during the crisis, now might be a good time to cautiously consider investing their money. It is suggested that pausing investment during the current scenario may not be a good move as the best return in investment actually comes when the markets are extremely uncertain. One must never let panic influence investment strategy as time and again, it is noticed that the markets around the world regain confidence and bounce back post pandemics.

Look for Most Favoured Options

During times like these, when the market volatility is extremely high, most people look for investment options that promise guaranteed returns. One of the most favoured option amongst the people for guaranteed returns is bank fixed deposits. However, bank fixed deposits can with its own set of drawbacks. First, bank fixed deposits have a maximum lock-in period of 10 years that means you cannot save your money for more than 10 years under a fixed deposit though you may choose to renew the fixed deposit after maturity. This means the interest the bank is promising can only be locked-in for 10 years and not more than that. Second, in the last 6 years, the rate of interest of fixed deposits have fallen drastically. The rate of interest on FD’s have fallen from 8.5 per cent per annum in 2014 to 5.4 per cent in 2020 which is an all-time low. And then, there is no certainty if the rate of interest will go up from here or fall further in the next few years. 

Most importantly, the returns on bank fixed deposits are not eligible for tax rebate. These are some important reasons why during such high market volatility, one must invest in plans that apart from promising guaranteed returns give you the best interest on the amount invested and also the interest earned must be tax-free. One such example of plans that offer the best returns even during the ongoing market scenario is guaranteed non-participating products.  

Investing in the Right Products

When a customer invests in a guaranteed non-participating product, he upfront knows how much would be the returns on the amount he is investing today. Like for say if you invest Rs. 10,000 per month for 10 years in a non-participating product, you will get a return of Rs. 8950/month from 12th year for 25 more years (Until 37th year) that in total makes for Rs. 39 Lakh. You have the option to go for a lump sum payment or a monthly income as per your specific needs and requirements. These plans come with different pay terms and policy terms and promise maximum IRR – the annual rate of growth an investment is expected to generate – ranging between 5.3 and 5.8. Most importantly, the returns are guaranteed for a longer time period with maximum time period being 25 years. This means non participating products are best for anyone who has an investment goal ranging from 5 years to 25 years. Few advantages of the plan include benefit under 80C on amount invested and benefit under 10 (10D) on the returns. The customers even get a life cover equal to 10 times of the annual premium.

At Policybazaar, customers can find any array of guaranteed non-participating products which are targeted at customers with different investing horizons ranging from short term to long term. This means that anyone looking for investing their money for 5 years and get returns in 10 years or anyone looking for investing the money for 10 years and enjoy returns in 25 years can find the best products under non-participating products category. One of the most important features of non-participating products is that the returns on investment are completely tax free. This is an important reason why non-participating products enjoy immense popularity amongst consumers falling under the age group of 28-35 years old though these products are best for people looking for different investment options like savings, securing for child’s future, buying a home or retirement planning. 

Disadvantages of Participating Products

On the other hand, participating products lack many important features. The returns guaranteed on your investment in participating products is very less and also the bonus promised to customer’s is dependent on the company’s performance which is not very transparent. Usually, there are two-types of payout under participating products, the one being guaranteed amount which is very less and the other being bonus that depends on company’s performance.  The product charges in participating products are extremely high that come around approximately as high as 2.5 – 3 per cent. With such high product charges, even if the returns are high, the customers only get returns up to 5 per cent. Also, the returns are not guaranteed for a longer time period up to say 25 years the way it is in non-participating products.

Prominent Non-Participating Plans on Offer

Some of the prominent insurers offering non-participating products to the consumers include HDFC Life’s Sanchay. Under this plan, if a 30-year old individual invests Rs. 5,000 per month with a policy term of 15 years and a pay term of 10 years, on maturity the consumer will get Rs. 10.77 Lakh as 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 pay term of 10 years will get Rs. 13.94 Lakh on maturity as lump sum at an IRR of 5.51 per cent.

There are even plans available for people who do not wish to avail a lump sum benefit and rather wish to enjoy month income for a longer time period. One such plan is Bajaj Allianz Life’s Guaranteed Income Goal-Income. Under the plan, a 30-year old individual by investing Rs. 60,000 annually for a pay term of 10 years and a policy term of 10 years will get an annual income of Rs. 76,109 for 10 years. Under this plan, the income increases with 5 per cent sum assured after a pay term of 10 years.  


Author : Vivek Jain, Investment,
Business Unit Head, Policybazaar.com

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