As the second wave of COVID-19 continues to gripe India in a way like never before, the markets have also started to turn jittery. Fortunately, the conditions this time are not as severe as last time – during the last week of March 2020 – when the Sensex was hovering at an all-time low of 26,000 points. The market perspective seems better this year, as there is no nationwide lockdown and there is limited impact on growth and earnings.
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Even last year, when there was a complete lockdown across the entire country, the Sensex and Equity markets gave excellent returns - as high as 82 percent post first wave. This year as well, the markets have dropped from 51,000 points levels to 48,000 – 49,000 levels but for the next one year, the returns as expected to be extremely high. A prominent takeaway from last year’s market fall is that it is not wise to wait for the economy to recover completely before making an investment. It might be too late to do so! What we have seen in the past is that the market recovery rate is much higher than economy recovery rate from the slowdown.
It is better not to wait until the economic recovery and rather invest immediately as the market breaks the negative trend and starts to climb up.
Another important reason for the uninterrupted market growth this year is the fact that India is carrying out one of the largest vaccination drives across the globe. We all are sure that in this race between the pandemic and vaccination, the latter will ultimately win and the markets will bloom again.
Capital Guarantee Products – Best Products to Invest
Like last year, your focus this year too has to continue to be on saving. One of the best available solutions to invest your money considering the current market scenario is Capital Guarantee Solution plan – a perfect combination of Guaranteed Return Plans (Traditional Products) and Unit Linked Insurance Plans (ULIPs). Under these plans, the capital invested by the customer over the years is completely guaranteed and secured. This means, no matter how bad the market performs, your entire invested amount will be safe.
In fact, you will also be able to enjoy the upside of the market through your money invested in equity funds. Capital Guarantee Products invest 60 percent of your capital invested in Traditional plans in order to secure the corpus invested while 40 percent of the remaining amount is invested in ULIPs so that you take advantage of the market upside. However, in many plans the ratio of traditional plans and ULIPs vary as per the option customer chooses.
The amount invested in ULIP or equity market helps your money grow over the years. Given the present low rates of interest and no expectation of a rise in the coming few years, it is advised to better lock in your money in long-tenure plans such as Capital Guarantee Solution on the present charges.
The biggest fear in the minds of the customers these days is what will happen to their invested capital if the market goes down. Will they get their invested money back? To cater to this problem, insurers have come up with a new variant of Capital Guarantee plans – Income Capital Guarantee products that offer tripe benefits.
Under this variant, in place of lump sum payout at the end of the policy term, the customers gets the maturity benefit as a regular income for a fixed time period. Another excellent feature of the plan is early liquidity that places this plan above other products in the niche. The product guarantees income from the start of 1st year after the payment term gets over. Under the Capital Guarantee plans, apart from guaranteed income, customers also enjoy life cover up to 120 times of the monthly premium that is paid-out as lump sum upon the untimely demise of the policyholder.
Income Capital Guarantee Plans
There are numerous variants available in the Income Capital Guarantee Plans and the customers may choose one as per their specific needs and requirements. The most prominent amongst all the available plans is HDFC’s Income Capital Guarantee plan that offers a guaranteed payout of 200% on the invested amount along with returns on money invested in market-linked products.
Under this plan, if a 30-year old individual invests Rs 1 Lakh per annum for a period of 10 years i.e. up to 40-years of age, there is a 200% Capital Guarantee Return of Rs. 20.8 Lakh. This amount is paid out as an annual income of Rs. 58,700 per annum for 25 years along with a lump sum payout of Rs. 6 Lakh at the end of 25 years. These are the returns that the customer receives from the traditional/guaranteed return product – Sanchay Plus. From the investment made in the Click2Wealth market-linked product, the customer receives a lump sum payout of over Rs. 43 Lakh – based on past 7-year fund performance.
In total, on Rs. 10 Lakh invested for over a period of 10 years, the individual receives a total payout of Rs. 64 lakh in a total period of 25 years. Moreover, all the investments made under this plan and the payout received through this plan are tax-free under Section 80 C and Section 10 (10D) of the Income Tax Act.
Take Note
As an investment, you must note that market volatility is the only constant that comes with equity-linked investments. A market fall should not deter you from making any long-term investments. It is never advised to liquidate your investments during a market fall, as doing so will result in exiting in the red. Instead, you should invest up to the maximum extent with a long-term investment horizon in your mind. The golden rule says; do not delay your savings for long-term life goals because of the ongoing pandemic and rather invest the money saved due to fewer expenses being incurred.
The author, Vivek Jain, is Head- Investments at Policybazaar.com. The views expressed are personal
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