Guaranteed Tax Free Returns - Choose the Best available

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Guaranteed Tax Free Returns - Choose the Best available

Investment in debt products has never been in such a difficult phase where Bank FDs rates are at its rock bottom, sentiments for Debt Funds have been dented, difference in corporate FD rates and bank FDs is not more than 50-75 basis points for senior citizens, yields of Tax Free and PSU bonds are in the range 4.25% and 5.5% pa respectively making it yet unattractive. 

It is certainly a difficult period for many investors who want to allocate funds in Debt products not only for safety but also for the need of regular returns. With the equity market soaring and getting volatile the need for allocation in Fixed return products have become the need of hour. Covid19 has affected our lives in many ways and this is another aspect which has given a new dimension to the style of investment. With the uncertainty not yet getting over, the preservation of capital and deploying with tax efficiency and securing cash flow for the family is becoming a necessity. Therefore, we are introducing again a product offered by life Insurance companies not for purpose of Insurance but from the point of view of getting tax free regular returns.

We had covered in our previous Newsletter 3’S of Investments in a Plan- Stability, Safety, Security;we had covered a Plan to fulfil your financial goals. However, many Insurance companies have now floated schemes of different sort to fulfil the needs of many to tap the vacuum in the industry. The need is so strong that for attractive tax free income offered, the available liquidity is getting channelized in a big way. Many new features and the benefits have been added to bring flavour to the product. This has broadened the scope of the investors’ needs which can fulfil requirement of availability of regular returns to a lump sum amount, importantly tax free returns. Important features which are relevant for your understanding and making it part of your financial planning;

  1. Get 100% assured returns on your investment. Get the security of guaranteed returns 0% risk.

  2. It is a non-participating traditional life insurance plan. That means the pay-outs are guaranteed without market risk or risk associated with varying annual bonuses.

  3. Moreover, it is a deferred pay-outs plan i.e. maturity value is paid over a period of time both on regular basis for designated period or lump sum.

  4. Life Long Income Options are available for guaranteed income till the age of 99 guaranteed income or 25- 30 years depending on the term of the plan.

  5. You may be able to lock-in the rate of interest for a very long-term which is safe as the major investment is in long term Government bonds.

  6. These plans also provide insurance during the policy term. However, many plans have cover till the premium paying period and some have risk cover till the maturity.

  7. Options of funds withdrawal are available and loan against the maturity amount is possible.

The above are some of the salient features which stand out as investment in Debt product and the product shouldn’t be viewed as an Insurance product. The product which gives 5.5-6% tax free return that works out to pre-tax return of 8-8.5% p.a. for someone who falls in 30% slab. It makes good sense for anyone to lock his money in a safe debt instrument which gives you return much higher than even Taxable Bonds offered by RBI for 7 years. This also gives you certainty of cash flow without worrying about the change in ROI in alternate debt product at the time of its maturity. And the same also gives a life cover with an attractive return that is another advantage the family has. The product needs a good introspect for one to plan his finances to bring a certainty of cash flow or fulfilling a goal of life. Lump sum can suit someone you are looking to pay a loan, regular return could suit someone who is planning to leave his job after 5-10 years and need passive income while starting his business. We have seen people desiring for passive income even when they are active in working life. Rental income is one of the common sources of income with many families but to manage tenants and property is not something many would like to leave for next generation to handle seeing the temperament they have. Thus, we suggest to make it part of family portfolio as it wouldn’t be possible for good time to get high returns from any safe debt product.