Endowment Plan vs Fixed Deposit (FD) - Where to Invest in 2022?

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TABLE OF CONTENTS

Introduction

One of the biggest phases of creating an investment plan involves choosing the investment options for your portfolio. Here is where you need to compare different investment avenues and decide which ones you want to invest in.

Comparing two investment options is quite an exercise in diligence. You need to see how they stack up against each other in various areas such as risk, returns, features, benefits, taxation and more.

To help you understand how this works better, let's take up two investment options - pure endowment plans and fixed deposits. Both these investment options come with their own benefits, and they are typically preferred by investors who are looking for safer investment avenues.

In order to see how the two compare, it is essential to first get the fundamentals sorted. So, let us take a closer look at what an endowment plan and what a fixed deposit is.

What is an Endowment Plan?

An endowment plan is a kind of life insurance policy that offers the dual advantage of a life cover as well as an element of savings. By purchasing a pure endowment plan, you can save diligently over the long term, during the policy duration. These savings add up with time, and grow into a sizable maturity benefit.

So, in case the insured person survives the policy term, the savings component is paid out as the maturity benefit at the end of the period. On the other hand, if the person passes away during the policy term, the death benefits guaranteed under the plan are paid out to the nominee assigned by the policyholder.

This is, in short, how an endowment policy works. 

What is a Fixed Deposit?

A fixed deposit is an investment avenue that is offered by banks and Non-Banking Financial Companies (NBFCs). Here, you invest your funds for a fixed term, over which the bank or NBFC pays out interest to you at a predetermined rate. The rate of interest depends on the amount of money invested as well as the period over which you invest the said capital.

The interest can either be reinvested in the deposit, in which case the FD is known as a cumulative deposit, or it can be paid out to the depositor at regular intervals. The frequency of payouts can be monthly, quarterly, semi-annually or even annually.

Pure Endowment Plans vs Fixed Deposits

Now that you have gone over the basics of both endowment plans and fixed deposits, it's time to compare the two and see how they match up in various areas. For better clarity, we have chosen five key aspects of these investment options. See how they stack up against each other, so you can make a more informed decision about which investment avenue to choose.

Conclusion

This sums up the key differences between pure endowment plans and fixed deposits. You can make use of these details to choose the right investment avenue for your portfolio. If you think you could benefit from both options, however, you can always tweak your investment plan to include an endowment policy as well as a fixed deposit. After all, both offer their own distinct benefits. 

Read next: 5 things to know before purchasing an endowment policy

1 Provided all due premiums are paid
2 Tax benefits are subject to changes in tax laws. Kindly consult your financial advisor for more details.
ABSLI Assured Income Plus (UIN: 109N127V05) is a non-linked non-participating individual life insurance savings plan.
ADV/3/21-22/2551

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