Capital Guarantee Plans In UAE

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The Covid-19 pandemic has negatively impacted the economies around the world. While several countries are struggling to get back on track with their economy, an interesting phenomenon is being observed. Due to the uncertainties involved, an increasing number of people are looking for safer investment plans in UAE that offer a guaranteed return instead of opting for risky ones. 

Considering the investors' safety in mind, several insurers in the UAE offer a capital guarantee plan that provides a 100% capital guarantee to the customers irrespective of the market performance. Capital guarantee plans are typically Unit-linked investment plans (ULIPs) that offer insurance and investment benefits simultaneously. Owing to the recent market instability, individuals are more inclined towards the ULIPs. 

Capital Guarantee Investment plans are specifically designed to keep investors' principal safe while investing a fraction of the amount in the market to earn profitable returns. Go through the article below to know more about the various aspects of Capital Guarantee Plans in the UAE. 

What is a Capital Guarantee Plan?

As mentioned above, capital guarantee plans are a specific type of investment focusing on securing the investor’s funds. Companies operating such plans minimise  incurred losses through diverse investments in debts and equities. These plans are usually ULIPs and come with an insurance component and an investment component. 

The former component provides life security in case of unfortunate events, while the latter facilitates wealth generation over the period. In a typical unit-linked investment plan, around 60% of the capital is invested into debt funds while the remaining amount goes into equities. While the plans may have varying tenures, most plans in the UAE have a term of 10 years with a premium paying tenure of 5 years. 

A significant advantage of a capital guarantee plan is that it pays the full premium amount along with additional bonuses earned during the investment tenure back to the customers. Other than that, the plan aims at securing your investment from losses due to market fluctuations and generating considerable wealth. However, the maturity value depends on the market performance of the fund including the guaranteed amount at the end of the maturity period. Yet, with such diversified ventures, the guaranteed amount is always ensured.

Who Can Invest in a Capital Guarantee Plan in the UAE?

Like any other investment cum insurance plan, there are a few criteria that you must satisfy before investing. To invest in a capital guarantee plan, you should be at least 18 years old. Similarly, the maximum age for entering into the investment scheme is 65 years.

Besides the age factor, nationality and residence also play a crucial role. Most of these plans require the applicant to be a UAE national or a resident. As a capital guarantee policyholder, you can pay premiums monthly, quarterly, half-yearly, or annually. The plans are ideal for the following type of investors. 

  • Salaried individuals 
  • Self-employed individuals
  • People with a low-risk appetite 
  • Individuals seeking long term investment
  • People wishing to receive insurance coverage and wealth generation in a single product
  • Individuals wanting to secure their investment with guaranteed returns through market-linked products

What Does a Capital Guarantee Plan Offer?

The capital guarantee plan offers numerous benefits in addition to securing your investments. Here are the key benefits of a capital guarantee plan in the UAE. 

  • Besides the secured investment, the plan also financially protects the family members of the policyholders in case of untimely events. The insurance benefits are usually 10 times the annual premium. 
  • Capital guarantee plans also provide wealth generation through investment in equities and debts. 
  • At the end of maturity, you will receive your total premium amount along with the accumulated bonuses over the tenure. Since the investment depends on the market performance, a decent rise in the market can generate considerable returns. However, even if the market doesn’t perform well, you receive your guaranteed amount. 

Should You Invest in a Capital Guaranteed Plan in the UAE?

Even though the Capital Guarantee Solution Plan provides a complete capital guarantee, investors should take into account the opportunity cost before investing. The market-linked bonuses will be lower than the returns on a normal ULIP plan for the same amount invested.

This is due to the fact that almost half of the money is put in debt instruments, which guarantee returns and preserve capital but may not provide interest to the extent of direct equity. 

Similarly, with the length of the policy, the percentage of money invested in equity securities decreases. Generally, by the end of the fifth year, 80 per cent of the money is solely invested in debt funds. It should be noted that you don’t get the freedom to choose the type of fund with these plans. 

Thus, if you wish to invest in a low-risk investment and focus on the capital guarantee, the funds are ideal for you. However, you can also explore direct equity options or mutual funds if you have a better risk appetite.

Key Takeaways

  • Capital guarantee plans secure your investments through investment in debt and equities. The major chunk of investment goes into debts to offer you a secure investment.
  • These plans are a specific type of ULIPs and come with an investment component and an insurance component. 
  • They usually offer 10 times the insurance benefit to the annual premium you pay. 
  • In a capital guarantee investment plan, almost 80% of your capital is invested in debt funds which secures your investment. The rest 20% is invested in equities to accumulate bonuses. 
  • Unlike ULIPs, you don’t have a choice regarding the type of equities or debt fund to invest your funds in. 

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