Capital Guarantee Plan

The outbreak of COVID-19 has adversely affected the economy of the country. Currently, the country is going through a rough patch, thus it has become important for people to make a smart investment plan and invest in solutions that can offer them guaranteed returns. Keeping the safety of the customers in mind, the Capital Guarantee Solution plan has been introduced by Policybazaar in the market, which provides a 100% capital guarantee to the investors. These are ULIP plans which offer the benefit of insurance cum investment.

Nowadays, as the customers are apprehensive about purchasing ULIPs due to the recent market crash. Capital Guarantee Solution Plan is specifically created where the investor’s principal ca remain safe and a portion of the principal is invested in the market to earn a profitable return. Let’s read further to get into the details of the Capital Guarantee Plan.

What is Capital Guarantee Solution Plan?

The capital guarantee plan is an investment, which majorly focuses to safeguard the investor’s principal from any losses during the economic downturns. Under the capital guarantee fund, the fund company absorbs any losses experienced by the underlying investment. Capital Guarantee Plans are basically ULIP plans, which is a combination of insurance and investment. Under this plan, 50-60% of the amount invested goes into debt for capital protection and the rest is invested in equity. The plan comes with a policy tenure of 10 years and a premium paying tenure of 5 years.

The major advantage of the capital guarantee plan is that on the maturity of the policy full premium is returned along with the additional benefits made by the product. The capital gain funds thus aim to invest majorly in conservative instruments to help minimize the probability of losses and offer guaranteed returns.

The maturity value of this plan depends on the market performance of the fund as well as returns from traditional guarantee plans when the tenure of the policy ends. The investors can pay the premium of the policy in yearly, half-yearly, quarterly, or monthly mode. The plan offers a minimum entry age of 18 years whereas, the maximum entry age of the policy ranges up to 65 years.  Along with the benefit of guaranteed market return, the plan also offers a life coverage to the family of the insured, which is 10 times of the annual premium paid by the insured. Thus, if the eventuality struck during the tenure of the policy, the family of the insured will receive an insurance cover of Rs.10 lakh on the Rs.1 lakh premium of the policy.

To offer the capital guarantee solution plan to the customers, the Policybzaar has tied up with four major insurance providers Bajaj Allianz, Edelweiss Tokio, HDFC Life, and Max Life. The minimum premium rate of the Capital Guarantee Solution is Rs.25,000 per annum.

Sample Illustration of Capital Guarantee Solution Plan

For instance, the HDFC capital Guarantee Protection plan combines HDFC Sanchay Plus and HDFC Life Click 2 Wealth. So, let’s assume Mr. Akhil invests Rs.1 lakh per annum in this plan for a tenure of 5 years, at least 50,000-60,000 will be invested in the guarantee plan which is HDFC  Life Sanchay Plus and the rest Rs.40,000 will go into ULIP that is HDFC Life Click 2 Wealth. After the completion of policy tenure of 10 years, Mr. Akhil will get the guaranteed return of the total premium of Rs. 5 lakh along with the market-linked returns happens on Rs.40,000.

Capital Guarantee Solutions

*The rate of return is as on August 24, 2020

Note- Figures may vary based on market performance.

Should you Invest in Capital Guarantee Solution Plan?

Even though Capital Guarantee Solution Plan offers a 100% capital guarantee, it is important for investors to calculate the opportunity cost before making an investment. The investors should keep in mind that the market-linked returns on these plans will be less as compared to the returns that you will receive on pure ULIP plan for the same amount of money.

This is due to half of the money is invested in debt instruments to provide guaranteed returns and capital protection. In capital guarantee fund the participation in equity securities keeps on decreasing with the tenure of the policy and by the completion of 5^th policy years, 80% of the investment is made in debt funds only. Also, the plan does not provide any fund options to choose from. The plan has a high opportunity cost. However, if you have a very low-risk appetite and capital guarantee means a lot to you then you can surely opt for this plan.

This plan is best suitable for investors whose sole purpose is capital protection and a guaranteed return. From the perspective of life cover, the policy might not be adequate for the investors. For example, you will receive an insurance coverage of Rs.2.5 lakh for a premium amount of Rs.25,000 per annum, whereas as per the experts the coverage amount should be 10-15 times of the annual income.

Wrapping it Up!

Investors who want to invest in the long-term and who do not have proper knowledge of the equity market can consider investing in the capital guarantee solution plan. Looking at the current economic situation of the country, one may not gain profitable returns in the pure market-linked products if the market goes down. However, the capital guarantee solution plan ensures guaranteed returns to the investors and help then to secure themselves financially in this tough time by protecting their money.