Are you considering guaranteed plan...? Think again!!!
After ULIP out of season, equity market’s return flat the insurer and
mutual fund using “Guranteed” word to attract business. I am sure that most of
you very often interested with these schemes for shake of your protecting your
capital. After sometime you realize that your choice was wrong. I always
recommend to all investors that please read whole offer document, search on
sites or take advice from any good financial planner before any investment. No
matter what is the investment amount. After all it is your hard earned money so be
prudent at the time of investment.
Guarantee is a very powerful world in any sales drive. Insurance
companies offer guaranteed payout and insurance cover both to push the sales
and get the benefit of investor’s mindset as these products are easily
marketable with less effort. Before caught in the sales pitch you should
enquire about the return of investment.
It has been very clear now after review of many these types of guaranteed
insurance plan often fail to deliver the return even equal to bank fix deposit
in the long run. I am not mentioning here the particular name of these types of
plan as I don’t want to create any misconception or controversy but you will
also believe after the decoding these plans carefully.
Guaranteed income plans are non- participating traditional plan and never
disclose the investment costs and return. For example one plan says in the fine
print that “ 8 % of the sum assured as payback guaranteed”. Most of the time
investor think that he will get return of 8 % on the investment whereas the
fine print means that there is guaranteed 8% payout of the sum assured. After
many such plan’s analysis the actual net rate of return is 4%.
4% return is not great return in the 10-15 years. If you still happy with
these types of return choice is yours.
The cost of guarantee is so huge and opaque that it is very difficult to
arrive a net return on the investment. You are not getting only lower return
you are also eroding your capital against inflation. According to me, you
should concentrate on generating value from investment in the long run.
If you are conservative investor, Public Provident Fund (PPF) is good
option for high tax bracket. Lower tax bracket investor may go with bank fix
deposit also.
If you have some risk taking capacity you can make good capital
appreciation with tax saving. ELSS mutual fund is the best option for long term
investment as it offer capital appreciation with tax saving.
For more detail and any
other query related investment, you can contact me through my email
Warm regards,
Arvind Trivedi
Certified
Financial Planner
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