Exploring Fixed-Income Investment Options to Build a Wealthy Future

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Building a wealthy future is indeed one of the most coveted goals for most of the individuals as they wish to secure their future and have financial stability. From wealth creation standpoint, fixed income instruments are one of the most lucrative instruments as they are relatively less risky, provide capital preservation and offer assured and steady returns. Unlike equity investments, they are not high-risk instruments and can complement them to build a balanced portfolio with risk mitigated and aid in building long term wealth. Consequently, we see fixed income instruments forming a large part of personal investment portfolios and are the most relied upon instruments to build a healthy corpus to cater future financial obligations. From this perspective, let us look at why guaranteed fixed income insurance plans that combine the best of both worlds are better suited to safeguard your family in the long term.

Types of fixed income instruments available in India

Fixed income Investments form the backbone of a financial portfolio and from this standpoint the choice of fixed income instrument becomes imperative given the myriad of options available for an investor. A risk averse investor who is looking to build a secure and stable portfolio can invest in various fixed income instruments apart from fixed deposits and government bonds. These include Public Provident Fund (PPF), National Savings Certificate (NSC), National Pension Scheme (NPS), Sovereign Gold Bonds (SGBs) and even Debt Mutual Funds that invest in a range of fixed income securities in exchange for a nominal fee. While each of these instruments offer specific advantages, such as investments being exempt from income tax or the accrued amount being non-taxable on maturity, they do have certain restrictions that investors should be aware of. These include long investment lock-in periods for instruments such as PPF, NSC and NPS, while also not affording the same flexibility as fixed deposits when it comes to pre-mature withdrawal. Moreover, despite being risk free as compared to market-linked instruments, they do carry an element of credit and interest rate risk that could impact future returns.

Understanding the role of life insurance in protecting wealth

Apart from making and planning your investments in line with short-term and long-term financial needs or obligations, it is important to safeguard yourself and your dependent family members with adequate life insurance protection. Not only does a life insurance policy pay out a lump sum amount to your dependents in the event of death, but it can also render the requisite financial support in case of accidental, total and permanent disability if an additional cover is purchased. Moreover, if you opt for a critical illness cover, additional financial support is provided to cover medical costs amounting from hospitalization or treatment. Thus, by opting for a comprehensive life insurance plan with a healthy sum assured, you can financially secure yourself and your loves ones.

Achieving wealth growth, security and tax efficiency with crafted solutions

If one is looking at a blend of providing security of life insurance as well as an opportunity to grow their savings in one instrument, guaranteed return life insurance plans have all the requisite ingredients and is indeed the perfect recipe for achieving the balance. Offering paramount flexibility in terms of the policy term, premium payment term (PPT), premium payment frequency as well as premium amounts, it is possible to achieve infinite customization that is best suited to one’s personal and family needs. Unlike pure term insurance plans that only provide a death benefit, opting for a guaranteed return life insurance plan makes more prudent sense since it accrues an additional component equivalent to a simple percentage of the sum assured amount every year. These plans serve a dual purpose as they not only act like a fixed income investment but come with an added benefit of a life insurance cover.

Furthermore, the investor can avail taxation benefits on these policies, as premiums paid can be claimed for deduction under section 80C of IT Act 1961, while the amount of sum assured plus any guaranteed additions that is paid on maturity or death is completely tax free as per Section 10(10D) of the same act. Thus, opting for such plans is an enhanced tax efficient strategy that not only reduces your tax liabilities, but also turbocharges your wealth accumulation efforts.

Your journey towards financial well-being begins with an understanding of the dynamic interplay between fixed income investments and life insurance. If effectively harnessed, they can offer a secure foundation for building lasting wealth for your loved ones and secure their future while working towards your financial aspirations.

(The author is Chief Investment Officer, Future Generali India Life Insurance Company Limited. Views are personal)