Adequate Risk Is The Better Option

Are assured returns or fixed-interest instruments relevant in a falling interest rate regime? Which is the better investment option today?

Puneet Nanda

Head, Investments, ICICI Prudential Life

A plethora of options and increasing sales of assured returns financial products of banks, government-sponsored savings schemes and life insurers bear testimony to the continued bias of the consumers towards fixed-rate products.

However, the secular, downward movement of interest rates has forced players to reconcile between the need to reduce returns offered on their products to manage profitability and to be price competitive to manage volumes. Certain products that are not aligned to market yields have further exacerbated the competition. The main implications for the producers of assured returns products are management of spreads and the risk-return profile of the company.

This complexity of operations and the risks inherent in assured returns products raises the question, why offer them at all?

The answer is two-fold: From the consumer