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What is the difference between a fixed annuity, a variable annuity and a mutual fund?

April 26, 2017Annuity difference fixed mutual fund

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What is the difference between a fixed annuity, a variable annuity and a mutual fund?

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A. In general, an annuity is a contract by which an insurance company agrees to make regular payments. A fixed annuity guarantees principal and a specified interest rate (subject to the claims-paying ability of the issuer), and may also offer additional amounts. A variable annuity does not make any guarantees. The returns and value of a variable annuity account will fluctuate based on the investment performance of the underlying securities in its portfolio. For the purposes of your retirement plan, the main difference between variable annuities and mutual funds is that a mutual fund cannot be used for receiving income in the same manner as an annuity. However mutual funds offer more focused investment styles than annuities, offering you the ability to choose the funds that correspond closely to your more specific investment objectives.