Home Financial & Banking Terms What is Guaranteed Return?

What is Guaranteed Return?

Guaranteed Return refers to the pay back amount that a company is supposed to pay. Some of the schemes that provide Guaranteed Returns are Post Office Monthly Income Scheme, Employees’ Provident Fund, Public Provident Fund and so on.

When a company issues coupons and bonds, it agrees to pay guaranteed returns on them. But in case the company goes bankrupt, it will not pay any guaranteed return. As opposed to Guaranteed Returns, non-guaranteed returns are those which may or may not be paid by the company, for instance dividend on shares. Dividend is only paid when the company earns profit, else profit and dividend are not Guaranteed.

Guaranteed Returns in Insurance Policies

Guaranteed Returns is a minimum value that the insured receives when he or she lives on beyond the policy’s tenure. Usually, the concept Guaranteed Return is often confused with that of sum assured. In case of an insurance policy, if you have a 15 year life insurance policy that provides a coverage of INR 12,00,000 to the beneficiaries upon the death of the insured and an amount of INR 6,00,000 on maturity; then INR 12,00,000 is the sum assured and INR 6,00,000 is the Guaranteed Return.

Guaranteed Return vs. Assured Return

While Guaranteed Return refer to the guaranteed pay back amount, assured return offers the investor with a fixed return but there is no certainty whether the amount will be paid on time or will be paid at all.

One should be careful while buying both Guaranteed and Assured return products and these should not be bought from unknown companies.