Annuity basics

An annuity is a contract, usually with an insurance company, that converts a lump sum into a guaranteed income stream — often for the rest of your life. In exchange for handing over the lump sum (in the simplest "no return of purchase price" version), you get a fixed payout that can't run out, no matter how long you live or what markets do.

That guarantee is genuinely valuable — it removes both market risk and longevity risk (the risk of outliving your money) entirely. The cost is flexibility and, typically, growth: the payout is usually fixed in rupee terms and doesn't rise with inflation unless you specifically buy an inflation-linked variant (which pays a lower starting amount in exchange), and in the simplest product structure you give up the underlying capital permanently — there's nothing left for anyone to inherit.

Staying invested and drawing a systematic withdrawal (SWP) instead keeps the capital yours, gives it a chance to keep growing, and lets you adjust your spending if needed — but doesn't guarantee it will last, and depends on market returns you don't control.

There is no universally correct choice between the two — it depends on how much guaranteed-income certainty is worth to you personally, whether you have other flexible assets as a backstop, and whether leaving an inheritance matters. Real annuity products also vary a great deal (joint-life cover, return-of-purchase-price options, deferment periods), so treat any comparison here as illustrating the underlying tradeoff, not a specific product recommendation.