The financial world offers various forms of gains on your investments. These returns on investment depend largely on the sum of money you are willing to devote and the amount of risk you are agreeing to take. If you have sound knowledge of investments in capital markets, you can profit from the ups and downs of equities. However, if you do not want to take much risk and are looking for a sizeable income annually as well for a stipulated amount of time, you could buy an annuity.

The term ‘annuity’ can be defined as a contract between a person and a financial company. This type of investment is ideal for those investors who value periodic gains at comparatively lower risks. Typically, when a person buys annuity, the financial firm guarantees to disburse a fixed amount of remuneration every year for a stipulated term of years or till the person is alive. Annuity is generally offered by insurance companies and financial institutions like banks. Almost anybody can buy an annuity and benefit from its yearly returns.

There are different types of annuities offered in the financial markets. Some annuities pay a fixed amount to only the person who bought it till he is alive. In the event of death, even premature or accidental, the annual payment is withdrawn, legally. However, there are other forms of annuity that provide benefits to a spouse or other beneficiary as entitled by the person who bought it. Similarly, there are ranges of annuity that offer fixed benefits and varying returns on investment. Nevertheless, they must be carefully considered while weighing all options before entering into a contract with the financial firm. In the event of early or premature withdrawals, they attract penalties. The investor must also be cautious about certain factors like high sales commissions and expense ratios that occur while buying annuity.