InvestorQ : Why Indexed Annuity funds are not recommended to Invest?
Aishwarya Nimbalkar made post

Why Indexed Annuity funds are not recommended to Invest?

Nikita Damle answered.
3 years ago
An indexed annuity is a special class of annuity that yields returns on contributions based on a specified equity-based index. Indexed annuities are not really popular among other annuities as people may give more preference to its cons rather than pros. Even after being one of the most secured investment and providing fixed income to those near retirement, indexed annuities also has some disadvantages:

Higher tax implications: Under indexed annuities the amount received is lump sum; there are higher tax implications on the beneficiary. Any amount received is taxed as per the income-tax rates applicable to the person.

Effect of inflation: Cash flow stream of a fixed payout annuity may not keep pace with inflation, especially those of longer-term payout phases such as life annuitization.

High pre-withdrawal penalty: Generally a 10% penalty is imposed on withdrawing accumulated interest during the accumulation phase prior to age 59.5 yrs.

High Liquidation cost: If a person liquidates investment prior to maturity, it has high costs involved such as management fees, maintenance charges, and sales costs, etc.

Whatever investment people make, it is according to their needs, some need fixed income and some had other requirements. Some overlook cons over pros as they seem more of use to them even if they are less recommended.