Bank RM is pitching a guaranteed plan: Pay Rs 1L for 10yr to get Rs 1.2L later. Good alternative to FD?

Question

I am 45 and looking for safe, predictable returns for my debt allocation.

My bank relationship manager is pitching an endowment plan.

The structure is to invest Rs 1L every year for the next 10yr.

Starting in the 2nd year I receive Rs 25k annually, and from the 11th year onwards I get Rs 1.2L every year for another 10yr.

It sounds like a steady income stream, but is it better than a standard FD?

Mohan Gupta · Accepted Answer

Traditional endowment and annuity plans are often outright wealth destroyers sold using compelling narratives and complex payout structures. These structures mask their true rate of return. To the untrained ear, paying Rs 1L for 10yr to get Rs 25k early on and then Rs 1.2L later sounds like a guaranteed income stream. However, when you put these cash flows into a spreadsheet and calculate the actual annualized return, the reality is shocking. The return on this specific plan is a mere 3.11%. You are effectively losing money to inflation at that rate. Even a standard fully taxable Fixed Deposit will net a much higher return than a 3% endowment plan. These products are incredibly popular because banks and financial institutions heavily incentivize their RMs to push them. They have massive upfront commissions for the distributor. Always run the math on a spreadsheet before committing to any long-term insurance-investment hybrid. Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.

Bank RM is pitching a guaranteed plan: Pay Rs 1L for 10yr to get Rs 1.2L later. Good alternative to FD?

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