Quick Take: Guaranteed Return Products - Last Few Days Before Returns Fall

Guaranteed Return Products have been in existence for quite some time. These are one of the safest offerings of Insurance Companies and offer a plethora of benefits to the customers like A) safety from fluctuations in investment returns, B) reduction in reinvestment risk by locking in returns for longer periods (10-15 years), C) tax benefits on investment (80C), D) a life cover (usually 10 times the annual premium) and, E) tax-free proceeds on maturity. So much to offer in just one product is definitely attractive.

The current return scenario

The present returns offered by these products work as a cherry on the cake as it is an add on to all the features mentioned above. A typical guaranteed product today is offering a return in the range of 5.4%-6.1%, depending on the age of the entrant. For a person in his late 20s the return is around 5.6% (See illustration). For a person in a 30% tax bracket, the pre-tax return comes to around 8.5%. This at a time when pre-tax FD returns are at around 6% is definitely like hitting a jackpot. Plus you get all the benefits and lock this return for 15 years. Be it retirement, child's education, or marriage, a guaranteed insurance product is capable of handling the expenses while giving you a life cover simultaneously.

Illustrative Return of ICICI Prudential ASIP Plan




The illustration above shows that a 29-year-old investor opting for a premium of Rs. 5 lakh per annum for a period of 7 years will get Rs. 69,36,725 at the end of 15 years which corresponds to an IRR of 5.6%.

Limited period opportunity

With massive fall in FD rates (post-tax return of around 4% only) and expectation that same is going to go south further, guaranteed products have become hot favorites of investors. The insurance companies have been smart enough to smell this trend and are gearing up for steep reductions in the returns starting May. The new returns will not be anywhere near what is being offered today.

For investors who still want to lock in their returns for 10-15 years, these products make perfect sense for you. The window of opportunity is small (3-4 days), so if you have to act then do it right now!

Still have doubts? Then write to us at finriseinvestment@gmail.com or call us at 8568953926.

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