The volatility in the markets, both debt and equity, have left investors with little choice for investing their surplus funds. Most are flocking to government schemes. However, there is one other investment cum insurance scheme that investors can consider investing in.

The interesting investment opportunity that we are referring to is the Single Premium Whole of Life Insurance (Single Premium Bond) from HDFC Standard Life. Other insurance companies too offer similar products, but we will limit our discussion to this offering from HDFC.

This is how the Single Premium Bond from HDFC Standard Life works –

1. It is an investment product which has all the benefits of a life insurance product (i.e. Sec 88 while investing, and Section 10(10D) at the time of maturity i.e. proceeds are totally tax free).

2. For a Sum Assured of Rs 100, an investor needs to put in Rs 95. The min tenure of this product is 10 years. And the min sun assured for this product Rs 25,000. The age of the life assured has to be a min of 18 yrs.

3. Basically the money is invested like in a balanced fund (presently insurance companies like HDFC have no equity exposure, but with time they may invest 10 - 15% of their portfolio in equities).

4. This bond has several advantages over a balanced fund, the tax benefits being one of them.

5. The other main benefit is that unlike in a balanced fund, the investment in the 'Bond' is guaranteed.

6. Apart from guaranteeing the initial investment, the insurance company also guarantees the bonus, once it has been attached to the policy. Let’s take an example. Say in a balanced fund scheme you put Rs 100. The fund earns a 10% return, making your investment Rs 110. In the next year, the return is a negative 10% - in this case the value of your investment would fall to Rs 99. However, if this money had been put in the Single Premium Bond, the erosion in value would not have happened i.e. at the end of the second year the value of your investment would have remained put at Rs 110.

7. Importantly, the returns in case of the Single Premium Bond are compounded.

For a more detailed write up on this product, please click here.

Our calculations* indicate that an individual who invests in such a product can earn an effective return of about Rs 9.5% p.a. over the 10 year period (i.e. the value of your Rs 25,000 insurance policy, for which you will pay a one time premium of Rs 23,750, will grow to approximately Rs 54,000, on top of which there could be a terminal bonus). The effective return, as there is no tax, will be much higher depending on the tax bracket you fall under!! This, you will agree, is a very attractive rate of return.

*Please note that the indication of returns is only an estimate. For a more detailed explanation of how much return one can expect, please meet an insurance consultant.

If you wish to meet a consultant from HDFC Standard Life to gain a better understanding of this product and/or other insurance products, please register here.

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