Immediate Annuity Plan vs. Fixed Deposit in India

Annuity and Fixed Deposit plans are the financial freedom investment schemes opted by the investors from the insurance company. In both Immediate Annuity and FD plans, the investor will receive the invested capital with interest on the maturity date. 

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Immediate Annuity plans are considered as pension plans in India in which pensions will payout to the annuity owner in a monthly installment by the insurance company right away. FD's maturity amount will be paid to the investor on the maturity date. These two investment plans ensure safe and risk-free investments.  

Immediate Annuity Plan

It is an annuity contract where the investor invests the lump sum money in a single premium with the insurance company. This plan will make the regular payout to the investor right away, i.e., the payouts will begin immediately. Generally, persons who are about to retire will opt for this plan to get the monthly payouts immediately after investment. In India, the annuitant can benefit from taxation. 

What is a Fixed Deposit in India?

In India, Fixed Deposits are offered by Banks, Post offices, and Non-Banking Financial Companies (NBGC’s). Fixed deposit is the safe investment method where the investor invests his/her money in a term deposit account at a fixed rate of interest and at a fixed tenure (which generally ranges from 7 days to 10-20 years). On the completion of the fixed tenure, the investor will get the maturity amount (i.e., principal amount plus compound interest on it). The deposited amount cannot be withdrawn before the end of the tenure, but in some companies, the pre withdrawal option is available subject to a penalty.

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Difference between Annuity Plan and Fixed Deposit

In FD, the investor will invest the lump sum money in the term deposit account for an opted tenure, and the interest rate after that receives the maturity amount on completion of tenure. When it comes to the annuity plan, an investor invests a lump sum amount in the insurance company. The company will make payouts to the investor according to the opted length of the payment periods and invested premium. Both plans are credited to be safe and low-risk investment schemes. In addition, the investor will receive the invested capital with interest on the maturity date in both cases. However, there are some differences between the plans. They are:

Difference between Annuity plan and Fixed deposit 
S. No. Factor  Difference  Description 
  1. 1
Fixed-rate of interest  The rate of interest in FD’s is less than the rate of interest in Annuity.  The interest rate is higher in the Annuity than the FD. In Annuity, the rate of interest will be given upon the investment returns, which fluctuate as per the market conditions. In contrast, in FD, fixed interest is compounded until the maturity date.
  1. 2
Tenure  Annuities take more time to gain maturity than FD’s. The reason that the Annuities take more time to gain maturity than FD's is because of the opted policy terms by the investor.  
  1. 3
Liquidity  In FD, there is limited liquidity, whereas, in Annuity, there is no limit to liquidity. The entire amount is blocked in FD during the fixed tenure, and only limited liquidity is allowed. Also, premature withdrawal leads to a penalty. There is flexibility to withdraw the total amount in annuities.
  1. 4
Withdrawal penalty  Withdrawal penalties applied in FD’s but not for annuities. Premature withdrawal in FD’s allowed with the penalty on the principal amount. No penalty in case of annuities. 
  1. 5
Tax Tax levied on both. Taxes are levied in both FD and Annuities if the amount is withdrawn, but the taxation policies vary in both plans. And the remaining factors are tax-free. 

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There are multiple investment schemes available in the market provided by various financial institutions. Among them, Annuity and FD investment schemes are considered safe and low-risk investment plans. There will be regular payouts in the Immediate Annuity Plan immediately to the investor with higher returns than FD. Whereas in FD, the maturity amount will be paid after the completion of tenure. These plans are opted by most people to grow their income through investments.

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+ Trad plans with a premium above 5 lakhs would be taxed as per applicable tax slabs post 31st march 2023
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