Jun 26, 2024
Why are Guaranteed Return Products Necessary During Peak Stock Market Cycles
When a company or sector grows at an unbelievable pace, a close analysis is needed to know why the growth rate is so high. If the growth is not linked to the usual parameters of growth, there is a chance there is a bubble forming. These bubbles are a part of the market cycle and a few smart investors do make money, but a majority get caught up in the bubble and lose big. Therefore, there’s a need to understand market cycles.
Most markets, irrespective of the country, have four phases. The accumulation phase is when the market is at its lowest. So, the only way to go is up. This is a great time to buy cheap. The next phase is the mark-up phase when the market is going up. Most investors are back into the game while the smart early adopters are making bank by cashing out. The third phase is the distribution phase when the honeymoon period is over. There are many ups and downs. Sellers start selling hard, taking the market to the final phase – the markdown. People who have lost big are looking to salvage, while smart investors look for rock-bottom prices. These phases are cyclical.
These phases and the bubbles that form in the market, showcase that as an investor, the likelihood of you losing money is high. Therefore, you must make a few smart investments like guaranteed returns products that are protected from the volatility of the market.
What are Guaranteed Return Products?
Guaranteed return products are investments that will give you a guaranteed amount as a return, and your investment also remains safe. These returns are guaranteed by the bank or by the government and are safeguarded by legal rules and regulations. In times of market volatility, many people turn to such products to ensure they have regular returns coming and are not linked to the market in any way. These products are the best examples of low-risk investments. Here are some examples of guaranteed return products:
Fixed Deposit – This is a bank product wherein you can invest a certain amount of money for a fixed period. You earn interest on this fixed amount which is given upon completion of the investment term. The rate of interest may vary based on the bank, the FD product, and the age of the investor.
Public Provident Funds (PPF) – This investment scheme is available to most people who are Indian citizens. A PPF investment requires you to make an annual contribution to the PPF account for a period of 15 years. At the end of the 15 years, you can withdraw the money and the interest accumulated. If you want to continue with the account, you can increase the period by 5-year blocks. The PPF is a government-backed investment where the interest rates keep getting revised every quarter based on government bond returns.
Government Bonds – When a state or the central government requires liquid cash for infrastructure projects, they issue bonds that can be bought by investors. These bonds are known as government bonds. They have a payback period of 5 years to 40 years, and at the end of the period, the investor gets their principal amount back along with the interest accrued on the investment. The interest amount is fixed and guaranteed at the start of the investment.
Insurance Products – There are many insurance products as well that guarantee a return on investment. The insurance companies have professional fund managers who invest this money in other guaranteed return products and debt funds that are not linked to the stock market. Therefore, this money remains safe and continues to grow. There are many flexible plans that investors can choose from based on their needs.
As an investor, it is your right to be risk averse. However, that does not mean you cannot invest and get a decent return on your investment. Guaranteed return products are a great way to make your money work for you without risking its value.