Most of you must have signed up for medical insurances or loan facilities against which you have to give away a certain portion of your salary to the insurance company or the loan provider. Even the banks are financial institutions, where we are bound to deposit a certain amount every month either as savings or as a recurring scheme. Thus, the idea of payments at regular intervals must be clear to you by the above-mentioned examples. This payment which you make at regular intervals to any financial institution is termed as ‘annuity’.
To sum up, it can be said that annuities are official and legal contracts signed between you and the insurance company or any financial institution that allows you to invest a series of payments for a certain period or a lump-sum amount at one go. These amounts paid by you are deposited either in a personal account or a company fund that offers regular disbursement of a certain amount from the stated period. You can start an annuity scheme for savings, retirement, health insurance, home loan and so on.
Types of Annuities
Previously, we discussed what an annuity implies, however, let us dig deeper into this scheme of annuities and classify it into various segments for a better understanding of the subject matter. Thus, while describing the types of annuities, it can be said that Annuities are of three types based on their level of risks and potential to giveaway returns. These are:
- Fixed annuities – Just as the title indicates, fixed annuities ensure fixed payments as well as fixed returns over a certain period. If you sign up for fixed annuities, you can play on a safe side and expect to get guaranteed returns at the end of your tenure. Thus, these are less risky schemes to invest in. Just like you make FDs in the bank to get a greater some on maturity, the same is the scenario when you sign a fixed annuity scheme with any non-banking institution. You can claim your reimbursement value at maturity or expiration of the tenure of payments.
- Variable annuities –These annuities are specially designed schemes of the fund or stock market. With a variably high potential to yield greater returns, these schemes are also known for its high volatility and greater risks. If you invest in variable annuities like those of the mutual fund schemes or stock markets, you can likely gain a lump-sum amount within a shorter period, but the risks of investing here are high as the market value of stocks and shares are always fluctuating.
- Equity-indexed annuities –Such annuities guarantee a certain disbursement value against the investments you make with a financial institution. It could give you a certain percentage of raise in the value or it could return your investments from time to time without any raise in the amount. Thus, this scheme operates between the risk factor and the potentiality of the market fluctuations. Though a minimum pay-out is guaranteed to the investor, the sum provided is based on market index performances.
Are Annuities worth an Investment scheme?
Many might prefer savings than signing up for annuities. Fixed annuities are more like a savings plan, however, if you go for the variable annuities, there are possibilities to reach your financial goals before the tenure of your payments. Thus, these could provide an effective way to manage your investments and money so that you can accomplish goals like buying a car, owning a house, setting up a retirement fund or building an education surplus for your children. Thus, annuities can be termed as worth an investment scheme to sign up for. For assistance with company incorporation, investments, portfolio management and VAT registration in the UAE, reach out to GCC Filings.