Many investors would love to invest in financial instruments that offer sky-high returns with little to no risk. So it is not unusual to find investors searching for investment products that give double or triple returns without risking their initial principal amount. Perhaps in an ideal world, this would be possible. But the reality is far different. Investment vehicles that offer high returns can do so at the expense of taking high risks. Suppose you invest a bulk of your savings in an investment product tied to the market expecting great returns. If the market faces a setback, you could witness the loss of all your money. So, investors must assess their risk appetite when investing. Even if you can bear high risks, portfolio diversification is important. Do not rely solely on investment vehicles offering high returns to secure your future.
There are a number of top investment plans that offer guaranteed returns. As an investor, you should aim to invest in at least some of the following:
Public Provident Fund (PPF)
The Public Provident Fund scheme or PPF has been one of the most popular investment vehicles for decades. It was launched in 1968 by the Government of India. It is a savings scheme with reasonable returns as well as income tax benefits. It also has a lock-in period of 15 years. The popularity of PPF can be attributed to the fact that it is a government-backed investment vehicle. Furthermore, back in the 1990s, PPF offered return rates as high as 90% to investors. Little wonder then that PPF is entrenched in public memory as a secure, reliable, and good investment product.
It is not all good news, however. Since the beginning of the year 2000, PPF return rates have been on a steady decline. From a high of 12% from 1986 to 2000, the return rate stands at 7.1% today. Previously, PPF return rates were revised annually. Since April 2016, however, the rates are revised every quarter with the government linking it to the 10-year government bond yield.
While PPF as an investment vehicle may not be enough to amass great wealth, there is no need to write it off. A PPF investment is an easy way to add a secure and reliable investment product into your debt portfolio. It offers tax-saving benefits as well as guaranteed returns on investment.
National Savings Certificate (NSC)
The National Savings Certificate or NSC is another popular government-backed savings and investment product. Here too, does the investor get guaranteed returns along with the benefits of tax-saving. Your investment in NSC is tax-exempt; however, the interest it accumulates is taxable. Investments in NSC are secure as it is backed by the government. On the other hand, it is not safe from the effects of inflation. So, if the inflation rate is higher than the prevailing NSC return rate, your deposit does not earn real returns. On the flip side, what happens if the inflation rate is below the NSC return rate? Here your deposit will earn positive returns.
The current NSC scheme has a five-year lock-in. There used to be a 10-year option that has now been discontinued. The current rate of return on the NSC scheme is 6.8%. The returns are compounded on an annual basis. NSC return rates are revised quarterly by the government according to the existing bond rates. You can buy NSC from any Indian general post office or head post office.
However, the return rate applicable to your NSC investment remains the same throughout as it was when you first made your investment.
You can borrow a loan against your NSC investment. During the five-year tenure, your money remains locked-in. Premature encashment is only possible if the certificate holder has passed away.
You can use NSC investment to fashion a ladder of income. What you need to do is invest in a minimum of Rs 1000 either every month or every quarter. Upon maturity, you will receive a steady stream of income.
RBI Floating Rate Savings Bonds
These are bonds made available for subscription from 1st July 2020 by the Government of India. These bonds are only available in the electronic format and are held in a Bond Ledger Account (BLA). The bonds are held in the BLA with either RBI or an agency bank. Investors receive Certificates of Holding from RBI or the agency bank.
Given the name, you can determine that the bonds carry a floating interest rate. This interest rate is reset every six months. The pay-outs are also made every six months on 1st Jan and 1st July each year. You can invest in these bonds with a minimum of Rs 1000. Any higher investment has to be in multiples of Rs 1000. There is no cap on the maximum amount that you can invest.
These bonds come with a lock-in period of seven years. They also carry a return rate that is calculated at 0.35% over the existing NSC return rate. Since the current NSC return rate is 6.8%, the return rate for the RBI Floating Rate Savings Bonds is 7.15%. With this investment product, investors can expect to receive a regular fixed income. They will receive periodical income in the form of interest pay-outs.
There are a few disadvantages to this investment vehicle. One is that they do not carry any tax benefits. Due to this, investors may prefer other tax-saving investment products. Another is that since interest is paid out to investors, the interest is not compounded or cumulative.
Senior citizens looking for a regular source of income can choose this option. If you are not a senior citizen, you can invest any surplus money into this product and earn some guaranteed returns.
Life Insurance Plans
When it comes to investing, life insurance may not immediately spring to your mind. But life insurance plans today come with guaranteed returns in the form of maturity benefits. Some even offer regular income pay-outs. So it is not just basic life insurance coverage. These plans act as savings and investment schemes. So why settle for only life insurance coverage or only guaranteed returns? With the appropriate life insurance product, you can get both!
Endowment plans are life insurance policies that pay a lump sum amount after a specific period or on the death of the insured person. The coverage usually ranges anywhere between 10 to 25 years. Either the policyholder or their beneficiaries receive the payout from the life insurance company. The maturity benefit is paid to the policyholder if the insured person survives the coverage period. This maturity benefit comprises the guaranteed sum assured plus any applicable bonuses such as the Simple Reversionary Bonuses and Additional Bonus. In case the insured person does not survive the coverage period, their beneficiaries receive the Death Benefit. This consists of the guaranteed sum assured plus any applicable bonuses.
Unit-linked Insurance policies have gained popularity in recent years. These are a perfect combination of life insurance along with market-linked investment. A part of the premium paid by investors is invested in market-linked security options such as equities, debt instruments, and bonds.
Guaranteed income life insurance plans are also quite popular among investors. As with traditional endowment plans, they offer Maturity and Death benefits. These plans have policy terms ranging from 10 to 30 years. The USP of these plans is that they offer guaranteed regular income to policyholders. The income is a predefined percentage of the sum assured amount that the policyholder selects when purchasing the plan. As a policyholder, you can choose the frequency of the income pay-outs. You can receive the income pay-outs at monthly, quarterly, half-yearly, or yearly intervals.
Thus, life insurance policies can bridge the gap between simple life coverage and building a corpus for the future. And with the guaranteed income plans, you even get the benefit of a regular fixed corpus. With careful planning, a life insurance plan can be used to save for any future financial goals. These could be saving for a child’s education, buying a new car or house, or even providing income for retirement.
An added advantage of life insurance investment is that it comes with tax-saving benefits. Your premium payments are tax-deductible up to Rs 1.5 lakh. The Death benefit received by the beneficiary is wholly tax-exempt as well. If there are any health-related insurance riders attached to the plan, then those are tax-deductible as well up to Rs 2500 per year.
There are many types of insurance policies available. Do explore the options available thoroughly. Then pick one keeping your coverage needs and financial goals in mind.
Summing Up
High risk, high returns can be a dangerous game during uncertain times. Investors should attempt to diversify at least 30% of their investment portfolio into safe investments that provide guaranteed returns. Look for one that offers the most benefits, such as guaranteed returns, tax savings, and income pay-outs. Life insurance can cover most, if not all, these requirements along with providing coverage.
