Know the Difference between Money Back & Fixed Deposit Before You Invest

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While looking forward to achieving a long-term financial objective, understanding the difference between a fixed deposit & money money-back plan becomes important. This is because they both provide an individual with savings & security, but their objective are different. Fixed deposits are pure investment plans which provide assured returns over a definite period of time. On the contrary, money-back plans offer life coverage & returns at regular intervals as well. Those looking forward to a balance between the two, i.e. life coverage & investment for post-retirement coverage, exploring some plans such as money back will let them identify the Best Retirement Plan in India, accomplishing their retirement objectives.

What is a Fixed Deposit?

A fixed deposit is a type of savings plan issued by financial institutions or banks, where funds are deposited for a certain period of time. In return, banks pay investors the maturity amount along with a specified interest rate, which is normally higher than that on a savings plan. They are low-risk investments with guaranteed returns.

What is a Money Back Policy?

A Money Back Policy is a kind of life insurance providing the dual benefit, i.e., investment & protection. It allows you to receive returns at a regular interval of time during the policy tenure, providing life coverage & offering financial protection in the case of an unfortunate incident.

Under this plan, a certain amount or percentage of the sum assured is paid back to the policyholder at regular span of time. If in case the policyholder survives the plan, they will get the remaining amount of the sum assured. &, if the policyholder dies during the policy tenure, the full amount of the sum assured is paid back to the nominee, irrespective of the fact that the survival benefits have already been paid.

Difference between Money Back Policy & Fixed Deposit

Provided are the differences between the money-back policy & fixed deposits:

Basis of Difference	Money Back Policy	Fixed Deposit
Policy Tenure	The life insurance & premium back options are offered for a minimum of 10 years & a maximum of 30 years.	It is meant both for short & long term, ranging from 1 to 5 years.
Investment	The premium amount keeps changing with the plan, the calculation of which is dependent upon policy tenure, policyholder’s age, etc.	The minimum amount of investment is INR 1000. &, there is no limit on the maximum amount of investment.
Returns	These plans offer definite & certain returns.	They offer assured returns on investment along with interest.
Withdrawal	Premature withdrawals are allowed after a period of 2 years has been completed.	The premature withdrawal is not allowed, but some of the banks do allow it. If you withdraw funds before the due date, you will be charged a penalty for the same, reducing the overall returns.
Payout Options	It offers regular payouts instead of waiting till the time policy matures. Hence, this plan helps meet short-term commitments, providing you with liquidity.	It disburses payout at the end of the policy tenure, i.e. when the policy matures in a lump sum.
Taxation benefits	The premium paid towards the plan is eligible for a tax deduction u/s 80C of the Income Tax Act, 1961. Additionally, the maturity proceeds are exempt from tax u/s 10(10D) of the Income Tax Act, 1961.	In normal circumstances, there are no tax savings on fixed deposits. But, there are certain tax-saving fixed deposits which involve funds to remain invested for a period of 5 years, providing taxation benefits u/s 80C.

Features & Benefits of Fixed Deposits (FDs)

Provided are the features & benefits of the Fixed Deposits:

Fixed deposits offer guaranteed returns with high rates in comparison to a savings account.
Tax savings payouts come with a lock-in period of 5 years, under which tax exemption can be availed up to a maximum of INR 1.5 lakhs.
Fixed deposits get renewed automatically on maturity without any need to visit a bank.
Multiple fixed deposits can be opened at different banks, allowing you to save funds for a certain period.
These deposits are easily accessible both in private & public banks. Internet banking facility can also be used to open a fixed deposit account.
It comes with a flexible tenure ranging from 7 days to 10 years, which makes it suitable for both short-term & long-term investment goals.

Benefits & features of a Money Back Plan

Provided below are the benefits of a Money-back plan:

It offers maturity benefits, i.e., if the policyholder survives the policy tenure, he will receive the sum assured & applicable profits.
Get tax benefits u/s 80C of the Income Tax Act, but these plans provide an additional tax advantage on the sum of returns received & the maturity amount.
It offers survival benefits at specific time intervals throughout the policy tenure. It can be used to meet the financial objectives, hence creating financial security.
A money-back policy incorporates a factor of investment that allows the policyholder to build the corpus over a specified period. With the help of this corpus, one can meet future expenses related to life events.

Which Plan to Choose – Fixed Deposit or Money Back Plan?

If you are looking for a short-term & secure investment plan, reach out for a fixed deposit as they provide assured returns.
If you are looking for protection for long-term objectives, reach out for a money-back policy, as it offers dual benefits of investment & protection.
If you are looking for a regular income flow which would help you meet future financial obligations along with family protection, reach out for a money-back policy.

Conclusion

There are multiple factors on the basis of which one can decide whether to buy a fixed deposit plan or money-back policy, such as financial objectives, risk appetite, & protection required. Hence, assess your requirements & objectives from the plan & then choose accordingly. If your main objective is only investment at a reasonable cost, go for a fixed deposit. However, if you seek a protection factor also to be included, reach out for a money-back plan.

Know the Difference between Money Back & Fixed Deposit Before You Invest

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