fjrigjwwe9r3SDArtiMast:ArtiCont
What is it?
Annuity products are those that one knows as pension plans with two variants in the market: annuity plans available with the insurers and National Pension Scheme (NPS), said Suresh Sadagopan, founder of Navi Mumbai-based Ladder7 Financial Advisories.
“Annuity products are divided in two stages: accumulation stage where you builds a corpus and after maturity you will receive an annuity in a particular regularity: monthly, yearly and likewise,” said Kapil Mehta, founder of Kapil Mehta, founder of Securenow.in, an online insurance marketplace.
Annuity products are for those who have lump sum money and want regular pay-outs from that, said Mehta.
Returns and taxes
Until maturity, it is treated like a tax free insurance product but the post-maturity annuity product is treated like income and is applicable for income tax, said Mehta. The returns of such products are generally low because annuity products invest in government securities which have interest rate of around 7-8% and insurers may have to take on the investment risk, he said. The annuity product then may offer 6% which is again applicable for tax, said Mehta.
Another drawback apart from low returns and taxes is that the lump sum amount is not accessible until the lifetime of the annuity receiver, Sadagopan. The nominee may receive the amount on the demise of the annuity receiver.
Types and withdrawal limit
Within the insurance variants there are two kinds: traditional annuity wherein the insurer invests in specific vehicles as mandated by the regulator and unit linked plans where you can decide as per your choice, said Sadagopan. The insurance regulator of the country recently upped the withdrawal limit on annuity products recently. On pension products, one can withdraw up to 60% of the amount and the rest can be used to purchase an annuity product.
Earlier investors could withdraw only one-third of the amount, said Mehta. The regulator has mandated that the annuity product be bought from the same insurer from whom the original product was bought.