How annuities work in India

An annuity is a trade: you hand over a lump sum once, and in exchange receive a fixed monthly income for a chosen term — sized so that your original sum, plus whatever it earns along the way, is paid out exactly by the end. It’s the same fixed-payment math behind a loan EMI, just running in reverse: instead of you paying down a balance you owe, the provider pays out a balance they owe you.

What buying an annuity actually does

Two choices shape how much you end up receiving each month: whether payouts start immediately or after a deferment period, and the annuity rate itself. An immediate annuity starts paying right away, calculated directly on your purchase price. A deferred annuity delays payouts, letting your lump sum keep compounding at the annuity rate in the meantime — a larger sum to start with once payouts actually begin.

Immediate vs deferred, on the same lump sum

Why the rate is lower than you’d expect elsewhere

Annuity rates typically sit below what a market-linked investment might return, and that gap is the price of the guarantee. A provider promising a fixed payout regardless of how markets perform has to invest conservatively to make good on that promise — they can’t chase the higher, less certain returns an equity-heavy portfolio might offer, since a bad year on their end still has to show up as your unchanged monthly income. The lower rate isn’t a bad deal so much as the explicit cost of trading upside for certainty.