In the world of investments, the terms “guaranteed returns” and “assured returns” often pop up, tempting investors with promises of financial security and stability. However, are these two phrases just different wordings for the same concept, or do they hold distinct meanings? Let us find out.
The main intent of investing is to earn a profit. Depending on the asset or security you invest in, your return will vary. Some investments offer dynamic market returns, while others offer fixed returns that may be assured or guaranteed.
Assured returns do not depend on the capital resource health, and if a bank declares itself bankrupt or does not have funds to pay off the investor, no benefit will be provided to the investor. However, under guaranteed return plans, the investor must be provided with all the benefits irrespective of the bank’s financial state. Therefore, it is essential to consider the consequences and potential rewards before making an investment decision.
Let us understand the difference between the two insurance plans to help you comprehend what would be the best insurance plan for your family.
What are Guaranteed Returns?
Guaranteed returns are investments that come with a promise of a fixed rate of return over a specific period. This guarantee is typically provided by the issuer of the investment product, such as a bank or financial institution. The key aspect of guaranteed returns is that the investor can rest assured that they will receive the promised return, regardless of market conditions or fluctuations.
Under the terms of a guaranteed return insurance plan, the bank gives the investor all advantages regardless of their capital resource basis. Because they are immune to market volatility and provide guaranteed return plans over time, they are ideal for long-term investments. Therefore, investing in assured returns is recommended for individuals with established and unchangeable life goals, such as retirement, children’s education, or marriage. If you’re looking to buy a policy and want to invest with assured returns, you should consider the main life milestones you want to reach and add your debts while figuring out the cover amount.
Advantages of Guaranteed Returns
Guaranteed returns provide investors with security and stability by giving a fixed rate of return regardless of market conditions. Take a look at the few benefits of investing in guaranteed returns.
Certainty and Security
The primary advantage of guaranteed returns is the assurance of a fixed rate of return. Investors can rely on the predetermined return, regardless of market conditions or economic fluctuations. This stability ensures peace of mind to them.
Protection Against Losses
These returns act as a shield against potential losses. Regardless of how the market performs, the investor is guaranteed to receive the promised return. This can be particularly appealing during economic downturns or periods of volatility, as it provides a safe haven for investment capital.
Suitable for Conservative Investors
These returns are an attractive option for conservative investors who prioritize stability over high-risk, high-reward investments. They offer a more conservative approach to wealth accumulation, making them suitable for individuals with a lower risk tolerance or those who cannot afford to take significant financial risks.
Disadvantages of Guaranteed Returns
While guaranteed return investments offer certainty and protection against losses, they also come with limitations, such as limited growth potential and lower rates of return. Investors should carefully consider their risk tolerance, financial goals, and the trade-offs associated with guaranteed returns before making investment decisions.
Limited Growth Potential
One of the main drawbacks of guaranteed returns is their limited growth potential. In exchange for the assurance of a fixed return, investors often sacrifice the opportunity for higher yields that riskier investments may offer. This means that the returns generated from guaranteed investments cannot keep pace with inflation or provide substantial wealth accumulation over the long term.
Lower Rates of Return
Guaranteed returns often come with lower interest rates or yields compared to other investment options. This lower return on investment can impact the overall growth of an investor’s portfolio and may not be sufficient to meet ambitious financial goals or provide a substantial income.
Lack of Flexibility
Investments that offer guaranteed returns typically come with specific terms and conditions, including lock-in periods and limited liquidity. This lack of flexibility can restrict an investor’s access to their funds or limit their ability to make changes to their investment strategy. It’s important to consider whether these limitations align with your financial goals and personal circumstances.
What are Assured Returns?
Similar to guaranteed returns, the insurance company also provides assured returns regardless of the state of the market. The investor will still get the claim they are entitled to, even if the market performance is below par.
This assured benefit, however, has no bearing on the insurance company’s financial situation or the condition of its capital resources. The investor is not entitled to receive any benefits if the bank files for bankruptcy or does not have sufficient funds. Small banks frequently provide assured returns in place of guaranteed return plans in this situation to prevent going bankrupt.
Advantages of Assured Returns
Assured returns come with their own set of advantages. They offer stability, lower risk, and predictable income streams. Let us take a look at a few of them:
Lower Risk
Assured returns are associated with investments that have a lower risk profile. These investments are backed by underlying assets and have a strong track record of generating reliable returns. By reducing the level of risk, investors can potentially avoid significant losses, making assured returns an attractive option for those seeking a more cautious approach to investing.
Predictable Income Stream
One of the key advantages of assured returns is the ability to forecast income. Since the returns are relatively consistent, investors can plan their finances more effectively and rely on a predictable income source. This can be especially helpful for people who rely on investment income to cover their living expenses or for long-term financial planning.
Diversification
Assured returns can play a valuable role in diversifying an investment portfolio. By including investments with assured returns alongside other asset types, such as real estate or stocks, investors can mitigate risk and achieve a more balanced and stable overall portfolio. It can help smooth out the impact of market fluctuations and improve long-term returns.
Disadvantages of Assured Returns
Just like a coin has two sides, assured returns come with a few disadvantages that must be considered before buying it.
Inflation Risk
While assured returns offer stability, they may not always keep up with inflation. Inflation corrupts the purchasing power of money over time, and if the returns fail to outpace inflation, the real value of the investment may decrease. Therefore, it is necessary to consider the consequence of inflation on the returns and adjust expectations accordingly.
Limited Investment Choices
Assured returns are typically offered through specific investment products or schemes, which may limit the range of investment choices available to investors. This can restrict the ability to diversify further or tailor the investment strategy to specific needs or preferences.
Dependency on the Issuer
The reliability of assured returns depends on the credibility and financial stability of the issuer or the underlying assets. Investors must thoroughly research and evaluate the issuer’s track record, financial health, and reputation. There is always a certain level of counterparty risk associated with assured returns, and in the event of default or insolvency, investors may face challenges in recovering their investments.
Difference Between Guaranteed and Assured returns
Guaranteed returns and assured returns are both terms used in the financial industry to describe investment products that provide a certain level of returns to investors. While they share similarities, there are some differences between the two concepts. Some of the distinctions between these two are listed below:
Type
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Guaranteed Returns
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Assured Returns
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Nature of return
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Guaranteed returns are often fixed, predetermined, and specified in advance.
They can be expressed as a fixed percentage, a specific amount, or a formula-based calculation that determines the return.
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Assured returns are generally more flexible. They can vary depending on the performance of the underlying investment.
While there is a guaranteed minimum payout or return, the actual returns may be higher if the investments perform well.
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Risk factor
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Guaranteed returns plans have a minimal risk element because the returns are independent of market volatility.
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The reliability of the insurer or bank you have selected will determine the risk factor in assured return plans.
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Return potential
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In comparison to secured return plans, the amount you can receive through guaranteed return plans is rather less.
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In assured return plans, as the financial worth of your insurance policy increases over time, your returns will also climb. The amount you receive is, therefore, more.
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Claim rejection probability
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Your odds of having a claim denied are essentially nonexistent with guaranteed return policies. This is because only reputable and well-organized businesses offer guaranteed return policies.
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A sum-assured return plan may reject your claim depending on the institution’s financial stability. You can always move to court if your claim is denied because of their financial stability.
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Investment Horizon
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Guaranteed returns are often associated with longer-term investments.
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Assured returns can be found across various investment durations.
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Way Forward
While guaranteed returns and assured returns might sound like two peas in a pod, they do have considerable differences that investors should be aware of. The choice between the two depends on particular cases, risk appetite, and financial goals. Whether you prioritize stability or growth, it’s crucial to conduct thorough research, seek professional advice, and carefully assess the potential risks and rewards associated with each investment option. Remember, knowledge is the key to making informed investment decisions that go with your long-term financial objectives.
Key Takeaways
- Guaranteed returns offer a fixed rate of return regardless of market conditions or fluctuations, providing investors with security and stability.
- Assured returns, while also offering a guaranteed minimum payout or return, may vary relying on the performance of the underlying investment or insurance policy.
- Guaranteed returns are more suitable for conservative investors who prioritize stability, while assured returns may offer higher returns if the investments or insurance companies perform well.
- Guaranteed returns come with limited growth potential and lower rates of return compared to other investment options, while assured returns may not always keep pace with inflation.
- Investors should carefully consider their risk tolerance, financial goals, and the trade-offs associated with guaranteed and assured returns before making investment decisions and seeking professional advice when needed.
