Understanding the Difference Between Money Back Plans and Fixed Deposits

Have you been advised to make a worthy investment? Do you think it is high time for you to start thinking about it. If you have started looking for investment options, you must have definitely come across money back plans and fixed deposits. In case, you are confused between the two and cannot decide which one is right for you, read along to uncover the differences between money back plans and fixed deposits so that you can choose the right one. 

Differences Between Money Back Plans & Fixed Deposits 

Money back plans and fixed deposits are both important in their own way. If you are not able to pick the ideal one between the two for yourself, go through the below mentioned differences:

1. Policy Term

While money back policies provide life insurance as well as premium back options for a minimum policy term of 10 years, fixed deposits are ideal for long-term and short-term investments, with terms ranging between 1 to 5 years.

2. Investment

In the case of money back policies, premium differs between plans and is calculated based on age, chosen tenure and other factors. On the contrary, one can begin their fixed deposit investment with a minimum investment of Rs. 1,000 with no limit on the maximum investment.

3. Return on Investment

Money back policies come with a defined return on investment that is clearly stated. If we talk about fixed deposits, they come with a guaranteed return on investment. One can also make interest on their fixed deposit on a weekly, quarterly, or yearly basis.

4. Withdrawal

In the case of money back policies, premature withdrawals are permitted after 2 years of policy tenure, whereas in fixed deposits, one has an option of partial withdrawal. 

5. Payout Options

In money back policies, one gets the corpus in the form of long-term annual/monthly instalments. A policyholder can also take the entire corpus in the form of a lump sum payment.  On the other hand, in case of fixed deposits, one can take the payout amount in the form of a lump sum at the end of the policy term.

6. Tax Benefits

In money back policies, a policyholder receives tax benefits under Sections 80C and 10(10D) of the Income Tax Act 1961 for the premium paid and the maturity proceeds received from a life insurance policy. On the other hand, in fixed deposits, there is no provision of tax benefits. It must be noted that there are a few tax-benefit fixed deposits that one can invest in for a period of 5 years and gain tax benefits under section 80C. 

If you want to buy a money back policy, know that it would be a must for you to meet the eligibility criteria in the first place. Moreover, you would have to submit important documents like income proof, address proof and identification proof.

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.