When one talks of investment, the thought of investing in a stock market often crosses the mind. Many of us are enamoured by the high returns that a stock market has to offer. However, we often forget that the party isn’t going to last forever and there will be a time when the markets will plummet. In fact, the bankruptcy of high profile companies like Enron has wiped out the entire wealth of many small time investors.

Under such circumstances, would you not prefer an investment vehicle that guarantees you the safety of your principal amount as well as lets you book some profit from a rising stock market? If your answer is yes, then you ought to take a look at equity-indexed annuities.

Equity-indexed annuity seeks to invest the annuitant’s money in an equity index. In the US, insurance company invest into equity indices like Standard & Poor's 500 Composite Stock Price Index, Dow Jones Industrial Average, NASDAQ 100, and Russell 2000.

When a person opts for an equity-indexed annuity, the insurance company guarantees him a minimum return. This minimum return rate varies from company to company and is generally determined by the financial ability of the insurance company.

Equity-indexed annuities work in two stages. The first stage is known as the accumulation stage. During this stage, the annuitant pays premium/premiums to the insurance company.

Equity-indexed annuity tracks the changes taking place in a specified equity-stock index. As and when, these indices register a gain; your plan is credited with a percentage of that gain. However, these gains are not paid on a regular basis, but at preset points during the life of the equity- indexed annuity. Unlike an equity index mutual fund, an equity-indexed annuity does not take into account dividends or capital gains to calculate the annuity sum.

The second stage is known as the distribution stage wherein the annuitant is paid at periodic intervals or in lump sum, as the case may be.

Equity-indexed annuity offers the best of both a fixed and variable annuity. Since, equity-indexed annuities offer guaranteed minimum returns, you are assured of a regular income.

And in case, the stock indices are registering an increase, your plan will be credited with a part of that gain. However, the gains made by an equity-indexed annuity vary as they are based on the gains made by the selected stock index.

The USP of equity-indexed annuities is that they offer the investor a chance to benefit from the gains made in the stock markets without fearing the loss of the principal amount. These annuities also protect the investor from a potential slide in the stock market or the interest rates.

Equity-indexed annuities are a great option for people interested in stock market gains, albeit in a safer manner.