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Endowment Plan vs Fixed Deposit?

Know the difference between the two most popular investment schemes in India: Endowment Plan (guaranteed savings plans) vs Fixed Deposits.

  • 7,049 Views | Updated on: Jun 25, 2024

Keywords: fd vs endowment plan, endowment plan vs fixed deposit, fixed deposit vs endowment, endowment vs fixed deposit

Everyone is working hard to get the best lifestyle and manage a luxurious living for their family. It is extremely crucial to have sufficient savings so that one can stay financially secure during uncertain times. However, keeping all the money in a savings account is not a wise financial decision. You can deposit your surplus amount in fixed deposits or any other financial instrument. Read the article to understand the difference between the guaranteed savings plan or endowment plan vs fixed deposit.

What is a Guaranteed Savings Plan?

A guaranteed savings plan refers to the non-participating plans that offer an endowment assurance at a fixed amount. With this plan, the policyholder will have to pay the premiums for a fixed period. However, once the plan matures, policyholders will receive the benefits of the savings plan. The policyholder gets an assured sum of all their premiums paid at the end of the plan’s term with other additions. The additions include a fixed interest rate that is added each year. Along with this, the plan offers a maturity bonus as well at the end of the term. In addition, those who opt for a savings plan can apply for the tax benefits.

Features

Various features of guaranteed saving plans are listed below:

Premium

With a guaranteed savings plan, you can choose to pay the premium amount either over some time period or in a single shot. These options are provided to ease the burden on the policyholders.

Policy Term

The policyholder can choose the term that suits their needs.

Guaranteed Maturity Benefit

Under this plan, the policyholder is assured of getting the benefits upon the maturity of the policy. Also, the maturity benefit is payable in case the policyholder survives past the end of the policy term.

Death Benefit

Many policy providers offer death benefits as well. The benefit is provided to the beneficiary in case of the sudden demise of the policyholder.

Trial Period

If the policyholder is not satisfied with the clause and terms and conditions of the policy, then they can easily cancel the policy and return the documents within 15 to 30 days of commencement.

Revival

If the policyholder wants to revive the policy that was discontinued for not more than three years ago, then the insurance provider will accept your request.

Loans

Once the policy acquires a surrender value, you may avail the loan against insurance policy facility. The amount of loan available with the savings plan varies from bank to bank and policy sum.

What is a Fixed Deposit?

A fixed deposit is an investment instrument that is offered by banks, and Non-Banking Financial Companies (NBFC), to help their customers save money for future use. With a fixed deposit account, the policyholder can invest a sizable amount of money at a predetermined rate of interest for a fixed period. Banks offer different interest rates for fixed deposits. For this, you can choose a period ranging from a minimum of 7-14 days to a maximum of 10 years. The interest that the policyholder earns on the fixed deposit amount is either paid at maturity or periodically, depending on your choice.

Features

The key features of the fixed deposits are listed below:

Assured Returns

The return on fixed deposits is guaranteed and is more secure than any other investment plan.

Rate of Interest

The interest rate on fixed deposits changes depending upon the term you choose; however it remains constant during the term period.

Flexible Tenure

For fixed deposits, you can choose a tenure ranging from 8 days to 10 years, according to your preference.

Return on Investment

The interest earned on fixed deposits depends upon the maturity period. With a higher tenure, you can earn a higher interest.

Loans

In case of any emergency needs, you can easily avail loan against your fixed deposits. This saves the policyholder from prematurely ending their policy

Table of Difference: Endowment Plan vs Fixed Deposit

Factors

Endowment Plan (GSP)

Fixed Deposit

Tenure

Ten to thirty years or longer

One to five years

Investment

Min: ₹1000

Max: Limitless

Depends from plan and plan and generally ranges between ₹2500-₹500 per month

Returns

Monthly, quarterly, or annually

Guaranteed set of pre-determined returns

Payout

Collected funds can be invested in monthly or annual instalments, or a lump sum payout of the corpus can be opted for

Lumpsum payout at the end of tenure

Tax Benefits

Premiums upto ₹1.5 lakhs are exempted under Section 80C of the IT Act

No benefits generally. However, the 5-year tax-saving FD offers benefits under Section 80C of the IT Act

With the above-mentioned details, you can easily differentiate between FD vs endowment plan and select which one is best for you. Fixed deposits offer a flexible tenure, whereas a savings plan offers various maturity benefits. Therefore, it is advisable to have a mix of investment plans for a good outcome.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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