Capital Guarantee Solutions: Best Investment Bet During Covid-19

The pandemic has hugely impacted not just public health but economic health as well across the globe. The world is reeling under the steepest economic recession. But, does that mean that you shouldn’t invest in these times? Or, you are confused about how to invest in the current market situation? To help customers safely navigate the markets, Policybazaar recently came up with Capital Guarantee Solutions — a unique plan which gives 100% capital guarantee to the investors.  

What Are Capital Guarantee Solutions?
Capital Guarantee Solution plans are a combination of Unit Linked Investment Plans (ULIPs) and guaranteed return plans. Under this plan, around 50-60% of the invested amount goes into the guaranteed return products and the rest goes into ULIPs. You get the maturity value based on the upside on market-linked return from the ULIP component as well as returns on the traditional guarantee plan when your policy tenure ends. In these plans, the premium payment frequency can be monthly, quarterly, half-yearly, or yearly. The minimum age of entry for investment under this product is 18 years and the maximum age of entry is 65 years.

The biggest advantage of Capital Guarantee plans is that the premium you pay throughout the policy term is 100% guaranteed. This means, upon completion of the policy term a customer is guaranteed to get back all the premium invested, hence safeguarding their investments in the current economic downturn. 

For Example: If you invest Rs 10,000 per month in HDFC Life’s Capital Guarantee Solution Plan (combination of HDFC Life Sanchay and HDFC Click 2 Wealth), your pay term is 10 years and the policy tenure is 15 years - Rs 6,000 will go into the traditional products and Rs 4,000 will go to ULIP. At the end of policy term, you get a guaranteed return of Rs 12 lacs (total amount paid) plus returns on the amount invested in ULIPs.  

The plan ensures zero risks to capital and returns on upside of market-linked investments. Along with these advantages, investors also get a life cover which is up to 10 times of their annual premium.

Plan With a Long Term Horizon 
You can choose any policy term in Capital Guarantee Solutions which varies between 10-40 years and premium paying term varies between 5, 7, 10, 12 years. You can choose the policy term and pay term depending on your purpose for investment. It is recommended that your time horizon for investment should be 10-15 years for this product as equity markets give good returns in long term. 

Advantages: Capital Guarantee Vs Fixed Deposits/Mutual Funds
Investing in Capital Guarantee Solutions is a better option rather than mutual funds and fixed deposits (FD). Mutual funds don’t offer capital protection whereas a Capital Guarantee Solution plan offers it. Unlike mutual funds and FD, you can save tax on premium under Section 80 C and tax on returns under section 10(10D) in Capital Guarantee Solutions. There are no Long Term Capital Gains (LTCG) in Capital Guarantee Solutions whereas there is 10% LTCG on mutual funds. Unlike FD and mutual funds, Capital Guarantee Solutions also provide a life cover.

Why Should You Invest During Covid-19?
Historical data suggests that pandemic-driven market crashes are followed by big bull runs. During the SARS outbreak between January and March 2003, the Sensex had fallen by 11%. It went up nearly 80% after a year. Similarly, during the Zika outbreak, markets had fallen by 13.37% but after a year they had risen by 27.09%. Going by these trends, this may be a good time to start or even restart investing. 

Sensex was at 41,945 points in January this year and crashed to 25,981 points in March because of the pandemic. It has now recovered to 38,369 points. In such uncertain times, when the markets are volatile, investing in a product that offers a 100% guarantee on the premium amount is a good option. 

If you invest in a pure market-linked product, you may not get good returns if the market goes down. So, if you are a risk-averse investor, Capital Guarantee Solutions is the way to go.
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(Inputs and editing by: Sunny Lamba)