Understanding the difference between assured return and guaranteed return

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Understanding the difference between assured return and guaranteed return
Individuals invest in a host of products like life insurance, bonds, mutual funds etc., to get returns. But, returns can be either assured return or guaranteed based on your investment.

They are two different terminologies with different meanings and ultimate consequences. Let's find out the differences between them:

Assured returns

Assured returns give returns that are promised at the time of buying the investment option. But, the returns do not hedge away risks and so the return is not guaranteed. That is if the company faces some financial trouble then it may not pay out the return so assured.

Suppose, you invest in a Non Convertible Debenture issued by a company with a 15 per cent coupon rate. Now, it's highly likely that despite a solid rating from rating agencies, the company incurs losses and you may not get back the interest rate of 15 per cent so promised. So, it can be said that there is assurance that you will get the money but no guarantee.

Company fixed deposits, non convertible debentures all offer assured returns. If the company fails then there is a probability you have to forgo your returns. If you invest in any assured return product then you must have some risk appetite.

In case of bank fixed deposit a value up to Rs 1 lakh is insured by Deposit Insurance and Credit Guarantee Corp, but, not beyond that sum.

Guaranteed returns

Guaranteed returns products offers guaranteed rate of returns over a fixed period of time. They are less risky than assured returns. Small savings schemes like NSC, PPF, EPF are the products which offer guaranteed returns.

Conclusion

One of the best suggestion before investment is reading carefully the investment document first and find out what it offers.

You should also check the credential of the company before investing. The tenor for which assured returns or guaranteed returns are given should also be carefully examined.

In this way, if you choose the right investment option then it will help you in better returns in future.

GoodReturns.in

Story first published: Saturday, July 5, 2014, 11:26 [IST]
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