A comparative analysis of ulip of bajaj allianz life insurance co


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A comparative analysis of ulip of bajaj allianz life insurance co

  1. 1. A Comparative Analysis of ULIP of Bajaj Allianz Life Insurance Co. Ltd with Mutual Fund MINI PROJECT REPORT Submitted by RAJEEV JOSEPH REG.NO:08BA020 1st Year MBA KARUNYA UNIVERSITY Under the guidance of Ms. P.M. ANUSHIA LECTURER KARUNYA SCHOOL OF MANAGEMENT KARUNYA UNIVERSITY COIMBATORE – 641114 2008-2010
  2. 2. DECLARATION I, Rajeev Joseph, do hereby declare that this project work entitled “AComparative Analysis of ULIP of Bajaj Allianz Life Insurance Co. Ltdwith Mutual Fund” is an outcome of my study and is submitted in partialfulfillment of the requirement for the award of the degree of Master ofBusiness Administration, Karunya University. I also declare that this report has not been submitted by me fully orpartially for the award of any degree, diploma, title, recognition or any otherfellowship of any other university before.Place: ChanganacherryDate: 21-06-2009 RAJEEV JOSEPH
  3. 3. ACKNOWLEDGEMENTInitially, let me thank the almighty God for guiding me all through theproject work.I express my deep and sincere gratitude to Ms. P.M. Anushia, Facultyguide for providing the necessary assistance for the project.I sincerely acknowledge my gratitude to Mr. Justin Paul, BranchManager of Bajaj Allianz Life Insurance Company Ltd, Changanacherrybranch and Mr. Biju Sebastian ,Sales Manager for giving me anopportunity to do this project.I also owe my sincere thanks to all the staff in Bajaj Allianz LifeInsurance Company Ltd, Changanacherry branch, and the faculties of theDepartment of Business Administration, KARUNYA UNIVERSITY fortheir valuable guidance and suggestion in the preparation of this reportand completing the same successfully.
  4. 4. CHAPTER CONTENT PAGE No: 1 Executive Summary 1 Introduction 2 Objectives 3 Limitation 3 2 Indian Insurance Industry 4 3 Industry Profile 11 Unit Linked Insurance Policy (ULIP) 15 Mutual Fund 22 4 Data Interpretation and Analysis 41 Findings and Suggestion 71 Conclusion and Recommendations 73 Bibliography 74 5 Annexture 78
  5. 5. EXECUTIVE SUMMARY“A comparative Analysis of ULIP plans of Bajaj Allianz Life Insurance with mutualfunds in Changanacherry Branch” an analysis to be done be by Rajeev Joseph,student(MBA) of Karunya University, Coimbatore.Total Investment scenario is changing, in past people were not interested in investmentbecause there were no good options available for investment. Now there are manyoptions available for investment like life Insurance, Mutual fund, Equity market, Realestate, etc.Today people want more services and more return on their investment. So, most of theinsurance companies are providing more value – added services with the basic insuranceoperation.Another option for investment available is Mutual Fund. Mutual Funds are providinggood returns. So while investing people tend more to words mutual fund as they areproviding more returns than Insurance also, with a good investment portfolio. Mutualfund companies are providing more liquidity.The project was taken to know about, what are the main aspects in Bajaj Allianz LifeInsurance Company, and its USP (Unique Selling Preposition).Which gives it highestbusiness and customers. Customers always prefer to invest in a good option and in acompany which is market leader.After survey and analysis I came to know that most of the people go for ULIP insurancepolicies to cover the risk of life, and invest it in a good Portfolio but there is big portionof customers have taken the policies to save the taxes. And people are aware about thetax benefits they get for insurance policies. Therefore, while investing in any Investmentoption investor checks whether his money is safe or not, Mutual funds provides goodreturns but investments are directly exposed to risk. As in ULIP returns are related tostock market but they are having some insurance benefit and IRDA regulates theinvestment.
  6. 6. Many people are getting the tax benefits in ULIP. In Mutual Fund they have to investtheir money in tax saving funds to get the tax benefit. INTRODUCTIONTo make comparison of ULIP plans with Mutual funds in Bajaj Allianz Life InsuranceCo. Ltd. and to Create awareness about Unit Linked Insurance Plan (ULIP) Benefits. Theoverall goal of this project was to create awareness about investments. The Aboveproblem arises because every life insurance company has their products having differentpositive and negative aspects.Life Insurance is booming sector in today’s economy. So the responsibilities of theinsurance companies have been increased as compare to the past. Because in past peoplewere taking insurance policies for protection tool only. In present scenario insurancesector is providing more services with the basic life insurance. Bajaj Allianz LifeInsurance has number of products, which gives the right way to save the money and earngood profit by invested premium. Today people want more services and more return ontheir investment. So this insurance company is providing more value – added serviceswith the basic insurance operation.By doing this type of study in this Insurance sector and looking at the vast scope andopportunity to study this booming field of Life Insurance and the growing awarenessamong the public regarding insuring their life through Life insurance policies as well asthe growing contribution of Insurance in GDP of country with the number of privateplayers making entrance in this booming industry of Insurance.A Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal. The money thus collected is then invested in capital marketinstruments such as shares, debentures and other securities. The income earned through
  7. 7. these investments and the capital appreciations realized are shared by its unit holders inproportion to the number of units owned by them. Thus a Mutual Fund is the mostsuitable investment for the common man as it offers an opportunity to invest in adiversified, professionally managed basket of securities at a relatively low cost. OBJECTIVES •To understand the reason for which customers prefer ULIP as one of the best insurance investment mode rather than Mutual fund. •To find the significance difference between customers of different income with that of investment mode. •To Compare Investment Options of customers in ULIPs and Mutual Funds. LIMITATIONS • The middle class people do not know basic concept of ULIP so creating awareness is a big challenge for me. • The findings of my research is from a small sample size. • Narrow minded thinking of middle class people as investment is not their cup of tea.
  8. 8. • Many customers are thinking that investment in share market is very risky. As ULIP and Mutual fund both are related to share market. • A general preference to LIC and SBI over private players. • Hesitations on the part of respondents to disclose financial information. INDIAN INSURANCE INDUSTRYThe history of life insurance in India dates back to 1818 when it was conceived as ameans to provide for English Widows. Interestingly in those days a higher premium wascharged for Indian lives than the non-Indian lives as Indian lives were considered moreriskier for coverage. The Bombay Mutual Life Insurance Society started its business in1870. It was the first company to charge same premium for both Indian and non-Indianlives. The Oriental Assurance Company was established in 1880. The General insurancebusiness in India, on the other hand, can trace its roots to the Triton (Tital) InsuranceCompany Limited, the first general insurance company established in the year 1850 inCalcutta by the British. Till the end of nineteenth century insurance business was almostentirely in the hands of overseas companies.Insurance regulation formally began in Indiawith the passing of the Life Insurance Companies Act of 1912 and the provident fund Actof 1912. Several frauds during 20s and 30s sullied insurance business in India. By 1938there were 176 insurance companies. The first comprehensive legislation was introducedwith the Insurance Act of 1938 that provided strict State Control over insurance business.The insurance business grew at a faster pace after independence. Indian companiesstrengthened their hold on this business but despite the growth that was witnessed,insurance remained an urban phenomenon.The Government of India in 1956, brought together over 240 private life insurers andprovident societies under one nationalized monopoly corporation and Life InsuranceCorporation (LIC) was born. Nationalization was justified on the grounds that it wouldcreate much needed funds for rapid industrialization. This was in conformity with the
  9. 9. Governments chosen path of State lead planning and development.The (non-life)insurance business continued to thrive with the private sector till 1972. Their operationswere restricted to organized trade and industry in large cities. The general insuranceindustry was nationalized in 1972. With this, nearly 107 insurers were amalgamated andgrouped into four companies- National Insurance Company, New India AssuranceCompany, OrientalInsurance Company and United India Insurance Company. Thesewere subsidiaries of the General Insurance Company (GIC).The general insurancebusiness was nationalized after the promulgation of General Insurance Business(Nationalizations) Act, 1972. The post-nationalization general insurance business wasundertaken by the GeneralInsurance Corporation of India (GIC) and its 4 subsidiaries:Oriental Insurance Company Limited; New India Assurance Company Limited; NationalInsurance Company Limited; and United India Insurance Company Limited.Some of the important milestones in the life insurance business in India are:1850:Non life insurance debuts with triton insurance company.1870::Bombay mutual life assurance society is the first Indian owned life insurer1912:The Indian Life Assurance Companies Act enacted as the first statute to regulate the lifeinsurance business.1928 ::The Indian Insurance Companies Act enacted to enable the government to collectstatistical information about both life and non-life insurance businesses.1938:
  10. 10. Earlier legislation consolidated and amended to by the Insurance Act with the objectiveof protecting the interests of the insuring public.1956:245 Indian and foreign insurers and provident societies taken over by the centralgovernment and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956,with a capital contribution of Rs. 5 Crore from the Government of India. The Generalinsurance business in India, on the other hand, can trace its roots to the Triton InsuranceCompany Ltd., the first general insurance company established in the year 1850 inCalcutta by the British.Some of the important milestones in the general insurance business in India are:1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classesof general insurance of India.1957 :General Insurance Council, a wing of the Insurance Association of India, frames a codeof conduct for ensuring fair conduct and sound business practices.1968 : The Insurance Act amended to regulate investments and set minimum solvency marginsand the Tariff Advisory Committee set up.1972 : The General Insurance Business (Nationalization) Act, 1972 nationalized the generalinsurance business in India with effect from 1st January 1973. 107 insurers amalgamatedand grouped into four companies’ viz. the National Insurance Company Ltd., the New
  11. 11. India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the UnitedIndia Insurance Company Ltd. GIC incorporated as a company.1993: Malhotra Committee- headed by former Finance Secretary and RBI Governor R.N.Malhotra- was formed to evaluate the Indian insurance industry and recommend its futuredirection. The Malhotra committee was set up with the objective of complementing thereforms initiated in the financial sector.1997 : Insurance regulator IRDA set up.2000: IRDA starts giving licenses to private insurers:Kotak Life Insurance ,ICICIpotential and HDFC standard Life insurance are the first private insurers to sell a policy.2001: Royal Sundaram Alliance first non life insurer to sell a policy 2002 Banks allowedto sell insurance plans. INSURANCE MARKET –PRESENT The insurance sector was opened up for private participation seven years ago. For yearsnow, the private players are active in the liberalized environment. The insurance markethave witnessed dynamic changes which includes presence of a fairly large number ofinsurers both life and non-life segment. Most of the private insurance companies haveformed joint venture partnering well recognized foreign players across the globe. LIFE INSURANCE COMPANIES Sl. No. Insurer Foreign Partners 1 HDFC Standard Life Insurance Co. Ltd. Standard Life Assurance, UK 2 Standard Life Assurance, UK New York Life, USA 3 ICICI-Prudential Life Insurance Co. Ltd. Prudential , UK 4 Om Kotak Life Insurance Co. Ltd. Old Mutual, South Africa 5 Birla Sun Life Insurance Co. Ltd. Sun Life, Canada 6 Tata-AIG Life Insurance Co. Ltd. American International Assurance Co., USA 7 SBI Life Insurance Co. Ltd. BNP Paribas Assurance SA, France 8 ING Vysya Life Insurance Co. Ltd. ING Insurance International B.V., Netherlands
  12. 12. 9 Allianz Bajaj Life Insurance Co. Ltd. Allianz, Germany 10 Metlife India Insurance Co. Ltd. Metlife International Holdings Ltd., USA 11 Reliance Life Insurance Co. Ltd. 12 AVIVA Aviva International Holdings Ltd., UK 13 Sahara Life Insurance Co. Ltd. 14 Shriram Life Insurance Co. Ltd. Sanlam, South Africa 15 Bharti AXA Life Insurance Co. Ltd. AXA Holdings, France 16 Future Generali India Life Insurance Pantaloon Retail Ltd.; Sain Marketing Company Ltd Network Pvt. Ltd. (SMNPL), Generali, Italy 17 IDBI Fortis Life Insurance Company Ltd. Fortis, Netherlands 18 Canara HSBC OBC Life Insurance HSBC, UK Company Ltd. 19 Aegon Religare Life Insurance Company Religare, Netherlands Ltd. 20 DLF Pramerica Life Insurance Co. Ltd. Prudential of America, USA 21 Life Insurance Corporation of India TOP 10 LIFE INSURANCE COMPANIES IN INDIALIC (Life Insurance Corporation of India) still remains the largest life insurance companyaccounting for 64% market share. Its share, however, has dropped from 74% a yearbefore, mainly owing to entry of private players with innovative products and better salesforce.ICICI Prudential Life Insurance Co Ltd is the biggest private life insurance companyin India. It experienced growth of 58% in new business premium, accounting for increasein market share to 8.93% in 2007-08 from 6.97% in 2006-07.Bajaj Allianz Life Insurance Co Ltd has reported a growth of 52% and its market sharewent up to 6.98% in 2007-08 form 5.66% in 2006-07. The company ranked second (afterLIC) in number of policies sold in 2007-08, with total market share of 7.36%.SBI Life Insurance Co Ltd in terms of new number of policies sold, the company ranked6th in 2007-08. New premium collection for the company was Rs 4,792.66 crore in2007-08, an increase of 87% over last year.Reliance Life Insurance Co Ltd Total collected was Rs 2,792.76 crore and its marketshare went up to 2.96% from 1.23% a year back. It now ranks 5th in new businesspremium and 4th in number of new policies sold in 2007-08.
  13. 13. HDFC Standard Life Insurance Co Ltd with an income of Rs 2,680 crore in FY2007-08,registering a year-on-year growth of 64%. Its market share is 2.88% and it ranks 6 thamong the insurance companies and 5th amongst the private players.Birla Sun Life Insurance Co Ltd market share of the company increased from 1.22% to2.11% in 2007-08.Max New York Life Insurance Co Ltd has reported growth of 73% in 2007-08. Totalnew business generated was Rs 641.83 crore as against Rs 387.51 crore.Kotak Mahindra Old Mutual Life Insurance Ltd the fiscal 2007-08, the companyreported growth of 80%, moving from the 11th position to 9th. It captured a market shareof 1.19% in 2007-08. Aviva Life Insurance Company India Ltd ranking dropped to 10thin 2007-08 from 9th last year. It has presence in more than 3,000 locationsacross India via 221 branches and close to 40 banc assurance partnerships. Aviva LifeInsurance plans to increase its capital base by Rs 344 crore. MARKET SHARE OF VARIOUS LIFE INSURANCE COMPANIES IN INDIAHere is the market share of various Life Insurance Companies in India at the end ofFY2008. Company Name Market Share (in %) LIC 48.1% ICICI Prudential 13.7% Bajaj Allianz 10.3% SBI Life 6.2% HDFC Standard 4.1% Birla Sunlife 3.4% Reliance Life 3.4% Max New York 2.4%
  14. 14. OM Kotak 1.9% AVIVA 1.8% Tata AIG 1.5% MetLife 1.4% ING Vysya 1.2% Shriram Life 0.3% Bharti Axa Life 0.2% BOOMING INSURANCE MARKET IN INDIAWith a huge population base and large untapped market, insurance industry is a bigopportunity area in India for national as well as foreign investors. India is the fifth largestlife insurance market in the emerging insurance economies globally and is growing at32-34% annually. This impressive growth in the market has been driven by liberalization,with new players significantly enhancing product awareness and promoting consumereducation and information. The strong growth potential of the country has also madeinternational players to look at the Indian insurance market. Moreover, saturation ofinsurance markets in many developed economies has made the Indian market moreattractive for international insurance playersThis research report will help the client to analyze the leading-edge opportunities criticalto the success of insurance industry in India. Based on this analysis, the report gives afuture forecast of the market that is intended as a rough guide to the direction in whichthe market is likely to move.Total life insurance premium in India is projected to grow Rs 1,230,000 Crore by2010-11. •Total non-life insurance premium is expected to increase at a CAGR of 25% for the period spanning from 2008-09 to 2010-11.
  15. 15. •With the entry of several low-cost airlines, along with fleet expansion by existing ones and increasing corporate aircraft ownership, the Indian aviation insurance market is all set to boom in a big way in coming years. •Home insurance segment is set to achieve a 100% growth as financial institutions have made home insurance obligatory for housing loan approvals. •Health insurance is poised to become the second largest business for non-life insurers after motor insurance in next three years. •A booming life insurance market has propelled the Indian life insurance agents into the ‘top 10 country list’ in terms of membership to the Million Dollar Round Table (MDRT) — an exclusive club for the highest performing life insurance agents. COMPANY PROFILEBajaj Allianz Life Insurance is a union between Allianz SE, one of the largest InsuranceCompany and Bajaj Finserv.Allianz SE is a leading insurance conglomerate globally and one of the largest assetmanagers in the world,managing assets worth over a Trillion(Over INR 55,00,000Crores).Allianz SE has over 115 years of financial experience and is present in over 70countries around the world.At Bajaj Allianz Life Insurance, customer delight is the guiding principle. Their businessphilosophy is to ensure excellent insurance and investment solutions by offeringcustomized products, supported by the best technology.VISIONTo be the first choice insurer for customersTo be the preferred employer for staff in the insurance industry.To be the number one insurer for creating shareholder value.
  16. 16. MISSIONAs a responsible, customer focused market leader, we will strive to understand the insuranceneeds of the consumers and translate it into affordable products that deliver value for money.Accelerated Growth Fiscal Year No. of policies sold New Business in FY 2001-2002(6 mths) 21,37 Rs. 7 cr. 2002-2003 1,15,965 Rs. 63.3 cr. 2003-2004 1,86,443 Rs. 180 cr. 2004-2005 2,88,189 Rs. 857 cr. 2005-2006 7,81,685 Rs. 2,717 cr. 2006-2007 20,79,217 Rs. 4,302 cr. 2007-2008 37,44,742 Rs. 6,674 cr.Bajaj Allianz General Insurance received the Insurance Regulatory and DevelopmentAuthority (IRDA) certificate of Registration on 2nd May, 2001 to conduct GeneralInsurance business (including Health Insurance business) in India. The Company has anauthorized and paid up capital of Rs 110 crores. Bajaj Finserv Limited holds 74% and theremaining 26% is held by Allianz, SE.As on 31st March 2009, Bajaj Allianz General Insurance maintained its premier positionin the industry by achieving growth as well as profitability. The company garnered apremium income of Rs. 2866 crore, achieving a growth of 11 % over the last year. BajajAllianz has made a profit before tax of Rs. 149.8 crore and has become the only privateinsurer to cross the Rs.100 crore mark in profit before tax in the last two years. The profitafter tax was Rs.95 crores, which is also the highest by any private insurer. The companyranked second (after LIC) in number of policies sold in 2007-08, with total market shareof 7.36%. RESULTS FOR CURRENT FY TILL 31ST DECEMBER 2008The Gross Written Premiums (GWP) for the nine months ended on 31st Dec 2008, is Rs6726 crores as compared to Rs 5219 crores in the corresponding period of the previousyear - growth of 29%. New Business premium for the nine months ended on 31st Dec2008 is Rs. 3003 crores as compared to Rs. 3780 crores in the corresponding period ofprevious year.
  17. 17. Commission on new business premium, which was 27% during nine months ended on31st Dec 2007, came down to 20% during the current period.Operating expenses came down to 20% of GWP for the current period of nine monthsended on 31st Dec 2008 as compared to 26% for the corresponding period of previousyear.The Company posted a profit of Rs 364 lacs for the period ended 31st Dec 2008 ascompared to a profit of Rs 5358 lacs in the corresponding period of the previous year.The policyholder surplus is Rs 15514 lacs (corresponding period of previous year Rs18681 lacs) and the shareholders’ loss stands at Rs 15150 lacs (corresponding period ofprevious year: Rs 13323 lacs).Number of policies underwritten during the nine months ended 31st Dec 2008 were18,08,495 (corresponding period of the previous year 23,62,496). Policies in force as on31 st Dec 2008 is around 70 lacs. The company ranked second (after LIC) in number ofpolicies sold in 2007-08, with total market share of 7.36%.The share capital (including share premium) is Rs. 1211 crores as on 31st December2008. The solvency as on 31 st Dec 2008 stands at 261% (required solvency is 150%).During the period ended 31st Dec 2008, no additional capital has been infused. Despitechallenging environment, the company has been able to not only reduce commission butalso operating expenses. The solvency margin of the company continues to be verystrong.As on 31st Dec 2008, the Company employed on roll 22,129 staff as against 20,764 staffat 31st March 2008.The Company operates out of 1,138 offices as on 31 Dec 2008.
  18. 18. PRODUCTS PROFILEUnit Linked Plan •New family gain •New unit gain plus •New unit gain premierTraditional plan •Invest gain •Cash gain •Child gainRetirement Solutions •Swarna visranthi •New unit gain easy pension plusHealth Plan
  19. 19. •Care first •Health careTerm Plan •Risk care •Term care UNIT LINKED INSURANCE POLICY (ULIP)
  20. 20. UNIT LINKED INSURANCE POLICY (ULIP)A unit linked insurance policy is one in which the customer is provided with a lifeinsurance cover and the premium paid is invested in either debt or equity products or acombination of the two. In other words, it enables the buyer to secure some protection forhis family in the event of his untimely death and at the same time provides him anopportunity to earn a return on his premium paid. In the event of the insured personsuntimely death, his nominees would normally receive an amount that is the higher of thesum assured (insurance cover) or the value of the units (investments).However, there aresome schemes in which the policyholder receives the sum assured plus the value of theinvestments.Every insurance company has four to five ULIPs with varying investment options,charges and conditions for withdrawals and surrender. Moreover, schemes have beentailored to suit different customer profiles and, in that sense, offer a great deal of choice.The advantage of ULIP is that since the investments are made for long periods, thechances of earning a decent return are high.Just as in the case of mutual funds, buyers who are risk averse can buy into debt schemeswhile those who have an appetite for risk can opt for balanced or equity schemes.However, the charges paid in these schemes in terms of the entry load, administrativefees, underwriting fees, buying and selling charges and asset management charges arefairly high and vary from insurer to insurer in the quantum as also in the manner in whichthey are charged.Tax benefits
  21. 21. The premiums paid for ULIPs are eligible for tax rebates under section 80 which allows aa maximum of Rs. 1,00,000 premiums paid for taxable income below Rs 8,50,000 andProceeds from ULIPs are tax-free under section 10(10D) unlike those from a mutual fundwhich attract short term capital gains tax.Key featuresPremiums paid can be single, regular or variable. The payment period too can be regularor variable. The risk cover (insurance cover) can be increased or decreased.As in allinsurance policies, the risk charge (mortality rate) varies with age. However, for anindividual the risk charge is always based on the age of the policyholder in the year ofcommencement of the policy. These charges are normally deducted on a monthly basisfrom the unit value. For instance, if there is an increase in the value of units due tomarket conditions, the sum at risk (sum assured less the value of investments) reducesand so the risk charges are lower. The maturity benefit is not typically a fixed amount andthe maturity period can be advanced (early withdrawal) or extended.Investments can be made in gilt funds (government securities), balanced funds (part debt,part equity), money-market funds; growth funds (equities) or bonds (corporate bonds).The policyholder can switch between schemes (for instance, balanced to debt or gilt toequity). The investment risk is transferred to the policyholder.The maturity benefit is thenet asset value of the units. The value would be high or low depending on the marketconditions during the period of the policy and the performance of the fund manager.Thus there is no capital protection on maturity unless the scheme specially provides for it.There could be policies that allow the policyholder to remain invested beyond thematurity period in the event of the maturity value not being satisfactory. POINTS TO REMEMBER ABOUT ULIPFirst-year charges: Usually, a minimum of 15 per cent. However, high premiums attractlower charges and vice versa. Charges can be as high as 70 per cent if the scheme affordsa lot of flexibility. Subsequent charges: Usually lower than first-year charges. However,
  22. 22. some insurers charge higher fees in the initial years and lower them significantly in thesubsequent years.Administration charges: This ranges between Rs 15 per month to Rs 60 per month andis levied by cancellation of units and also depends on the nature of the scheme.Risk charges: The charges are broadly comparable across insurers.Asset management fees: Fund management charges vary from 0.6 per cent to 0.75 percent for a money market fund, and around 1.5 per cent for an equity-oriented scheme.Fund management expenses and the brokerage are built into the daily net asset value.Switching charges: Some insurers allow four free switches in every year but link it to aminimum amount. Others allow just one free switch in each year and charge Rs 100 forevery subsequent switch. Some insurers dont charge anything.Top-ups: Usually attracts 1 per cent of the top-up amount. Top-up normally goes directlyinto your investment account (units) unless you specifically ask for an increase in the riskcover.Surrender value of units: Insurers levy certain charges if the policy is surrenderedprematurely. This levy varies between insurers and could be around 75 per cent in thefirst year, 60 per cent in the second year, 40 per cent in the third year and nil after thefourth year.Fund performance: You could check out the performance of similar schemes (balancedwith balanced; equity with equity) across insurance companies.Look at NAV performance over a period of at least two to three years. This can only giveyou some indication about the credibility of the fund manager because past performanceis no guarantee to future returns, especially in insurance products where the emphasis ison long-term performance (10 years or more).Since insurance is a product, which entails a long-term commitment on the part of theinsurer, it is important not to go only by the features or the cost advantages of schemesbut by the parentage of the insurer as well.
  23. 23. Comparing schemes based on costs is a fairly complex exercise. As a rule, the higher theinitial years expenses the longer it takes for the policy to outperform its peers with lowinitial years costs and slightly higher subsequent year expenses.Retire unhurtPension plans are essentially tailored to meet old age financial requirements. But thereare certain advantages in joining a pension plan.First of all, contribution to pension funds upto Rs 10,000 is eligible for tax deductionunder section 80CCC. In other words, your pension contribution will get deducted fromyour taxable income.So if you are in the top tax bracket, liable to pay to a 30.6 per cent tax, then your taxsavings will be that much.All life insurance companies offer pension products - both conventional and unit-linked.In both cases you pay a certain premium amount for a specified length of time.Usually, the minimum entry age is 18 years and the maximum age is 60 years. You canchoose to pay the premium for five to 30 years. When the policy matures, you receiveone-third of the value of the accumulated amount as a lump-sum payment.For the remaining, you can buy annuities either from the existing insurer or any otherinsurer.While in a conventional scheme, your money is managed through the insurers pooledinvestment account and you are entitled to bonuses every year, in a ULIP you receive thevalue of the investment in your individual account.In a ULIP you have the flexibility to choose between a conservative scheme or anaggressive scheme with high allocation to equities. Pension policy imposes hugepenalties for early termination. HOW DOES ULIP WORKSara is a thirty-year old who wants a product that will give him market-linked returns aswell as a life cover. He wants to invest Rs 50,000 a year for 10 years in an equity-based
  24. 24. scheme. Based on this premium, the sum assured works out to Rs 532,000, the exactamount of premium being Rs 50,032.Based on the current NAV of the plan that Sara chooses to invest in, he is allotted units inthe scheme. Then, units equivalent to the charges are deducted from his portfolio.The charges in the first year include a 14 per cent sales charge, an administration charge(7 per cent for the first Rs 20,000 and 3 per cent for the remaining Rs 30,000) andunderwriting charges, which are deducted monthly.Besides, mortality charges or the charges for the life cover are also deducted. For theremaining nine years a 3.5 per cent sales charge and an administrative charge of 4 percent (for the first Rs 20,000 and 2 per cent for the remaining Rs 30,000) are levied inaddition to mortality charges.Fund management fee of 1.5 per cent (equity) and brokerage are also charged. This costis built into the calculation of net asset value.On maturity - that is, after 10 years - Sara would receive the sum assured of Rs 532,000or the market value of the units whichever is higher.Assuming the growth rate in the market value of the units to be 6 per cent per annum Sarawould receive Rs 581,500; assuming the growth rate in the market value of the units to be10 per cent, Sara would receive Rs 7,24,400.In case of Saras untimely death at the end of the ninth year, his beneficiaries wouldreceive the sum assured of Rs 532,000 or the market value of the units whichever ishigher. Assuming the growth rate in the market value of units is 6 per cent per annum, thevalue of investment would be Rs 510,200.However, his family will get Rs 532,000 as it is the sum assured.Assuming a growth rate of 10 per cent per annum, the value of units at the end of theninth year would be Rs 621,900. Hence, the beneficiaries would get Rs 621,900. ADVANTAGES OF ULIP •Can easily rebalance your risk between equity and debt without any tax implications.
  25. 25. •Best suited for medium risk taking individuals who wish to invest in equity and debt funds (at least 40% or higher exposure to debt). No additional tax burden for those investing mainly in debt unlike in MFs. RISKS ASSOCIATED WITH ULIPSULIPS as the name suggests are directly linked with the investments made by theinsured. Though he does not have a direct say in this but he does offer his choice in theform of investment.With stock markets soaring high a few months back, ULIPs were offering a good rate ofreturn, but now with a sudden downfall of the stocks, ULIPs are bound to becomenegative investments.At present, a policy-holder cannot understand the growth of his investments vis-à-visother funds in the market, since there is no benchmark to measure one fund against theother. Usually a policy-holder could ask his investment in a ULIP to be, for example, 55per cent in equity and 45 per cent in debt. These components can be mixed according tohis risk-taking ability. An investor, therefore, would have to look at quarterly statements,where the fund would be compared with benchmarks. However, this may not be a truerepresentation of the NAV, as the ULIP could be a mix of debt, liquid and equityinvestments.The reality is that most of the ULIPs take more than 5 years to break even. Policies wherethe costs are 65 per cent and upwards have not even recovered the principal despite thestrongest bull market we have ever witnessed.
  27. 27. A mutual fund is simply a financial intermediary that allows a group of investors to pooltheir money together with a predetermined investment objective. The mutual fund willhave a fund manager who is responsible for investing the pooled money into specificsecurities (usually stocks or bonds). When you invest in a mutual fund, you are buyingshares (or portions) of the mutual fund and become a shareholder of the fund.Mutual funds are one of the best investments ever created because they are very costefficient and very easy to invest in (you dont have to figure out which stocks or bonds tobuy).By pooling money together in a mutual fund, investors can purchase stocks or bonds withmuch lower trading costs than if they tried to do it on their own. But the biggestadvantage to mutual funds is diversification.ACCORDING TO AMFI (ASSOCIATION OF MUTUAL FUND OFINDIA):A Mutual Fund is a trust that pools the savings of a number of investors who share acommon financial goal. The money thus collected is then invested in capital marketinstruments such as shares, debentures and other securities. The income earned throughthese investments and the capital appreciation realized is shared by its unit holders inproportion to the number of units owned by them.Thus a Mutual Fund is the most suitable investment for the common man as it offers anopportunity to invest in a diversified, professionally managed basket of securities at arelatively low cost. The flow chart below describes broadly the working of a mutual fund.
  28. 28. CHARACTERISTICS OF A MUTUAL FUND: •Investors own the mutual fund. •Professional managers manage the affairs for a fee. •The funds are invested in a portfolio of marketable •Securities, reflecting the investment objective. •Value of the portfolio and investors’ holdings, alters with •Change in market value of investments. ADVANTAGES OF MUTUAL FUNDS:The advantages of investing in a Mutual Fund are:1. Professional Management: You avail of the services of experienced and skilledprofessionals who are backed by a dedicated investment research team which analysesthe performance and prospects of companies and selects suitable investments to achievethe objectives of the scheme.2. Diversification: Mutual Funds invest in a number of companies across a broad crosssection of industries and sectors. This diversification reduces the risk because seldom doall stocks decline at the same time and in the same proportion.You achieve thisdiversification through a Mutual Fund with far less money than you can do on your own.
  29. 29. 3. Convenient Administration: Investing in a Mutual Fund reduces paperwork and helpsyou avoid many problems such as bad deliveries, delayed payments and unnecessaryfollow up with brokers and companies. Mutual Funds save your time and make investingeasy and convenient.4. Return Potential: Over a medium to longterm, Mutual Funds have the potential toprovide a higher return as they invest in a diversified basket of selected securities.5. LowCosts: Mutual Funds are a relatively less expensive way to invest compared todirectly investing in the capital markets because the benefits of scale in brokerage,custodial and other fees translate into lower costs for investors.6. Liquidity: In open-ended schemes, you can get your money back promptly atAssetValue (NAV) related prices from the Mutual Fund itself.With close-ended schemes,you can sell your units on a stock exchange at the prevailing market price or avail of thefacility of repurchasethrough Mutual Funds at NAV related prices which some close-ended and intervalschemesoffer you periodically.7. Transparency: You get regular information on the value of your investment inaddition todisclosure on the specific investments made by your scheme, the proportion invested ineachclass of assets and the fund manager’s investment strategy and outlook.8. Flexibility: Through features such as Systematic Investment Plans (SIP), SystematicWithdrawal Plans (SWP) and dividend reinvestment plans, you can systematically investor withdraw funds according to your needs and convenience.9. Choice of Schemes: Mutual Funds offer a variety of schemes to suit your varyingneeds
  30. 30. over a lifetime.10. Well Regulated: All Mutual Funds are registered with SEBI and they function withintheprovisions of strict regulations designed to protect the interests of investors.Theoperationsof Mutual Funds are regularly monitored by SEBI. DISADVANTAGES OF MUTUAL FUNDS:· No Guarantees: No investment is risk free. If the entire stock market declines invalue, the value of mutual fund shares will go down as well, no matter how balanced theportfolio. Investors encounter fewer risks when they invest in mutual funds than whenthey buy and sell stocks on their own. However, anyone who invests through a mutualfund runs the risk of losing money.· Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensatebrokers, financial consultants, or financial planners. Even if you dont use a broker orother financial adviser, you will pay a sales commission if you buy shares in a LoadFund.· Taxes: During a typical year, most actively managed mutual funds sell anywhere from20 to 70 percent of the securities in their portfolios. If your fund makes a profit on itssales, you will pay taxes on the income you receive, even if you reinvest the money youmade.· Management risk: When you invest in a mutual fund, you depend on the fundsmanager to make the right decisions regarding the funds portfolio. If the manager doesnot perform as well as you had hoped, you might not make as much money on your
  31. 31. investment as you expected. Of course, if you invest in Index Funds, you foregomanagement risk, because these funds do not employ managers.A measurement of an option position or premium in relation to the underlying instrument.In mutual fund also there is certain amount of risk-return factor associated according tothe investment option these are as follows, RISK RETURN Equity High High Balanced Medium Medium Debt Low Low TYPES OF MUTUAL FUNDS:I. Closed-end or Open-endOpen-end Funds: An open-end fund is one that has units available for sale andrepurchase at all time. An investor can buy or redeem units from the fund itself at a pricebased on the Net Asset Value (NAV) per unit.Close-end Funds: A close ended fund makes a one-time sale of a fixed number of unit. Itdoes not allow investors to buy or redeem units directly from the funds. However, toprovide liquidity to investors many closed-end funds get themselves listed on stockexchange. Funds do offer “buy-back of funds/units” thus offering another avenue forliquidity to closed-end fund investor.II. Load vs. No Load: Marketing of a new mutual fund scheme involves initialexpense. These expenses may be recovered from the investors in different ways atdifferent times. Three usual ways in which a fund’s sales expenses may be recoveredfrom the investors are:
  32. 32. 1. At the time of investor’s entry into the fund/scheme, by deducting a specific amountfrom his initial contribution: front-end or entry load.2. By charging the fund/scheme with a fixed amount each year, during the stated numberof years: deferred load.3. At the time of the investor’s exit from the fund/scheme, by deducting a specificamount from the redemption proceeds payable to the investor: back end or exit loadThese charges made by the fund managers to the investors to coverdistribution/sales/marketing expenses are often called “loads”. Funds that charge front-end, back-end or deferred loads are called load funds. Funds that make no such chargesor loads for sales expenses are called no-load funds.In India, SEBI has defined a “load” as the one-time fee payable by the investor to allowthe fund to meet initial issue expenses including brokers’/agents’/distributors’commissions, advertising and marketing expenses.A load fund’s declared NAV does not include load chargesIII. Tax-exempt vs. Non-Tax exempt Funds: Generally, when a fund invests intax-exempt securities, it is called a tax-exempt fund. In India, after the 1999 UnionGovernment Budget, all of the dividend income received from any of the mutual funds istax-free in the hands of the investors. However, funds other than Equity Funds have topay a distribution tax, before distributing income to investors. In other words, equitymutual fund schemes are tax-exempt investment avenues, while other funds are taxablefor distributable income.Different types of mutual fundTypes of Mutual Fund:Once we have reviewed the fund classes, we are ready to discuss more specific fundtypes. Funds are generally distinguished from each other by their investment objectivesand types of securities they invest in.
  33. 33. A. Broad Fund Types by Nature of InvestmentsMutual funds may invest in equities, bonds or other fixed income securities, or short-termmoney market securities. So we have Equity, Bonds and Money Market Funds. All ofthem invest in financial assets. But there are funds that invest in physical assets. Forexample, we may have Gold or other Precious Metal Funds, or Real Estate Funds.B. Broad Fund Types by Investment ObjectiveInvestors and hence the mutual funds pursue different objectives while investing. Thus,Growth Funds invest for medium to long term capital appreciation.Income Funds invest to generate regular income, and less for capital appreciation.Value Funds invest in equities that are considered under-valued today, whose value willbe unlocked in the future.C. Broad Fund Types by Risk ProfileThe nature of a fund’s portfolio and its investment objective imply different levels of riskundertaken. Funds are therefore often grouped in order of risk. Thus, Equity Funds have agreater risk of capital loss than a Debt Fund that seeks to protect the capital while lookingfor income. Money Market Funds are exposed to less risk than even the For internal useby Training Department of Prudential ICICI Mutual Fund Bond Funds, since they investin short-term fixed income securities, as compared to longer-term portfolios of BondFunds.Money Market Funds: Lowest rung in the order of risk level, Money Market Fundsinvest in securities of a short-term nature, which generally means securities of less thanone-year maturity.
  34. 34. Gilt Funds: Gilts are government securities with medium to long-term maturities,typically of over one year (under one-year instruments being money market securities).Debt Funds (or Income Funds): Next in the order of risk level, we have the generalcategory Debt Funds. Debt funds invest in debt instruments issued not only bygovernments, but also by private companies, banks and financial institutions and otherentities such as infrastructure companies/utilities.Diversifies Debt Funds: A debt fund that invests in all available types of debt securities,issued by entities across all industries and sectors is a properly diversified debt fund. Adiversified debt fund is less risky than a narrow-focus fund that invests in debt securitiesof a particular sector or industry.Focused Debt Funds: Some debt funds have a narrow focus, with less diversification inits investment. Examples include sector, specialized and offshore debt funds. Otherexamples of focused funds include those that invest only in Corporate Debentures andBonds or only in Tax Free Infrastructure or Municipal Bonds.High yield Debt Funds: There are funds which seek to obtain higher interest rates byinvesting in debt instruments that are considered “below investment grade”. e.g. JunkBond Funds.Assured Return Funds – an Indian Variant: The SEBI permits only those funds whosesponsors have adequate net-worth to offer assurance of return. For e.g. MIPs. Investorshave some lock-in period.Fixed Term Plan Series – Another Indian Variant: These are essentially closed-end.These plans do not generally offer guaranteed returns. This scheme is for short-terminvestors who otherwise place money as fixed term bank deposits or inter corporatebonds.Equity Fund: As investors move from Debt Fund category to Equity Funds,they face increased risk level. •No guarantee returns
  35. 35. •High potential for growth of capitalTypes of Equity Funda) Aggressive Growth Fund •Maximum capital appreciation •Invests in less researched or speculative shares. •Very volatile & riskier.b) Growth Fund •Growth fund invest in companies whose earnings are expected to •Rise above average rate. e.g. Technology Fund •Capital appreciation in 3 – 5 years •Less volatile then aggressive growth fund.c) Specialty FundThey invest in companies that meet predefined criteria.i) Sector Funds •Technology Fund •Pharmaceutical Fund •FMCG Fundii) Offshore Funds Invest in equities in one or more foreign countries.iii) Small-Cap equity Funds Invest in shares of companies with relative lower market capital.d) Diversified Equity Funds
  36. 36. A fund that seeks to invest only in equities, except for a very small portion in liquidmoney market securities, bur is not focused on any one or few sectors or shares, may betermed a diversified equity fund. While exposed to all equity price risks, diversifiedequity funds seek to reduce the sector or stock specific risks through diversification.i) Equity Linked Savings Schemes: An Indian VariantInvestment in these schemes entitles the investor to claim an income tax rebate, butusually has a lock-in period before the end of which funds cannot be withdrawn.e) Equity Index FundsAn index fund tracks the performance of a specific stock market index. The objective isto match the performance of the stock market by tracking an index that represents theoverall market. The funds invest in share that constitute the index and in the sameproportion on the index.f) Value FundsValue Funds try to seek out fundamentally sound companies whose shares are currentlyunder-prices in the market. Value Funds will add only those shares to their portfolios thatare selling at low price-earnings ratios, low market to book value ratios and areundervalued by other yardsticks. Fund concentrate on future growth prospect havinggood potential.g) Equity Income FundsThere are equity funds that can be designed to give the investor a high level of currentincome along with some steady capital appreciation, investing mainly in shares ofcompanies with high dividend yields. •Hybrid Funds – Quasi Equity/Quasi Debt: Many mutual funds mix these (money market, debt and equity) different types of securities in their portfolios. Such funds are termed “hybrid funds” as they have a dual equity/bond focus.
  37. 37. •Commodity Funds: While all of the debt/equity/money market funds invest in financial assets, the mutual fund vehicle is suited for investment in any other- for examples- physical assets. •Real Estate Funds: Specialized Real Estate Funds would invest in Real Estate directly, or may fund real estate developers, or lend to them, or buy shares of housing finance companies or may even buy their securities assets.Following are the different products and services Offered by MutualFund Companies •Open ended schemes •Close ended schemes •Growth/Equity oriented Schemes •Income/Debt oriented Schemes •Balanced Funds •Money market or liquid funds •Gilt Funds •Index Funds •Exchange Traded Funds •Sectoral Funds •Thematic Funds •Commodity Funds •Real Estate Funds
  38. 38. •Tax Saving Funds •Hybrid FundsThere are several ways for investment and disinvestments in mutual funds such as : •Systematic Investment Plans (SIPs) •Value Averaging •Systematic Transfer Plans (STPs) •Systematic Withdrawal Plans(SWPs) •Automatic Reinvestment Plans. •Open ended fund In an open-ended fund, sale and repurchase of units happen on a continuous basis, at NAV related prices, from the fund itself. The corpus of open-ended funds, therefore, changes every day. •Close ended fund A closed-end fund offers units for sale only in the NFO. It is then listed in the market. Investors wanting to buy or sell the units have to do so in the stock markets. Usually closed-end funds sell at a discount to NAV. The corpus of a closed-end fund remains unchanged. •Growth fund Provide capital appreciation over the medium to long-term •Investor who does not require periodic income distribution can choose the option, where the incomes earned are retained in the investment portfolio and allowed to grow, rather than being distributed to investors.
  39. 39. •Investors with longer investment horizons and limited requirements for income choose this option. •The return to the investor who chooses a growth option is the rate at which his initial investment has grown over a period for which he has invested in the fund. •The investor choosing this option will vary the NAV with the value of the investments portfolio , while the no. of units held with remains constant. •Income fund Provide regular and steady income to investor •Balanced fund Provide both growth and regular income. •Money market fund Provide easy liquidity, regular income and preserve the income •Tax saving scheme offer tax rebeats to the under specific provisions of the Indian income tax laws Investment made under some schemes are allowed as deduction U/S 88 of the income tax act . • Automatic Reinvestment Plans Reinvestment of amount of dividend made by fund in the same fund. In this option, the no. of units held by the investor will change with everyreinvestment. The value of units will be similar to that under the dividend option There are four types of plans as follows • Lump sum Investment It is one time investment.. Investors can invest particular amount one time for fixed time of period. • Systematic Investment Plans( SIP) – For regular investment SIP is investing a fixed sum periodically in a disciplined manner for long term. It gives benefit of Rupee Cost averaging. In SIP monthly minimum Rs.500 or Rs.100 are invested.
  40. 40. Interest is calculating compoundly. Many SIP gives insurance benefits. VAP is modified version of SIP. It is Voluntary Accumulation Plan. It allows the investor flexibility with respect to the amount and frequency of investment. In VAP, investor has to impose voluntary self discipline.• Systematic Withdrawal Plan ( SWP) – For regular income The lump sum amount is invested for one time and then fixed percent amount is withdraw monthly. Remaining amount will grow continuously. This plan is suitable for retired person, because it gives regular income.• Systematic Transfer Plan ( STP) – Transfer on a periodic basis a specified amount from one scheme to another within the same fund family. It gives option to the investor if the current fund performance in not satisfactory.• Dividend option • Investors will receive dividends from the mutual fund , as an and when dividends are declared. •Dividends are paid in the form of warrants or are directly credited to the investor’s bank accounts. •In normal dividend plan , periodicity of dividends is left to the fund managers, the timing of the dividend payout is decided by fund manager. •Mutual funds provide the option of receiving dividends at pre-determined frequencies,wich can vary from daily,weekly,monthly,quarterly,half-yearly and annual. Investors can choose the frequency of dividend distribution that suits their requirements. •Investors choosing this option have a fixed no. of units invested in the fund and earned incomes on this investment.
  41. 41. •The NAV of this investors holding will vary with changes in the value of portfolio and the impact of the proportion of income earned by the fund to what is actually distributed as dividend. REGULATORS IN INDIA •SEBI - The capital markets regulators also regulates the mutual funds in India. SEBI requires all mutual funds to be registered with them. SEBI issues guidelines for all mutual funds operations - investment, accounts, expenses etc. •RBI as supervisor of banks owned mutual funds - As banks in India came under the regulatory jurisdiction of RBI, bank owned funds to be under supervision of RBI and SEBI. •RBI as supervisor of Money Market Mutual Funds - RBI has supervisory responsibility over all entities that operate in the money markets. Hence in the past Money Market Mutual Funds scheme of Mutual funds had to be abide by policies laid down by RBI.Recently, it has been decided that Money Market Mutual Funds of registered mutualfunds will be regulated by SEBI through SEBI (Mutual Fund) Regulations 1996. COMPARISON OF ULIP VS MUTUAL FUNDUnit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutualfunds in terms of their structure and functioning. As is the cases with mutual funds,investors in ULIPs are allotted units by the insurance company and a net asset value(NAV) is declared for the same on a daily basis.
  42. 42. Similarly ULIP investors have the option of investing across various schemes similar tothe ones found in the mutual funds domain, i.e. diversified equity funds, balanced fundsand debt funds to name a few. Generally speaking, ULIPs can be termed as mutual fundschemes with an insurance component.However it should not be construed that barring the insurance element there is nothingdifferentiating mutual funds from ULIPs1. Mode of investment/ investment amountsMutual fund investors have the option of either making lump sum investments orinvesting using the systematic investment plan (SIP) route which entails commitmentsover longer time horizons. The minimum investment amounts are laid out by the fundhouse.ULIP investors also have the choice of investing in a lump sum (single premium) orusing theconventional route, i.e. making premium payments on an annual, half-yearly, quarterly ormonthly basis. In ULIPs, determining the premium paid is often the starting point for theinvestment activity.This is in stark contrast to conventional insurance plans where the sum assured is thestarting point and premiums to be paid are determined thereafter.ULIP investors also have the flexibility to alter the premium amounts during the policystenure. For example an individual with access to surplus funds can enhance thecontribution thereby ensuring that his surplus funds are gainfully invested; conversely anindividual faced with a liquidity crunch has the option of paying a lower amount (thedifference being adjusted in the accumulated value of his ULIP). The freedom to modifypremium payments at ones onvenience clearly gives ULIP investors an edge over theirmutual fund counterparts.2. ExpensesIn mutual fund investments, expenses charged for various activities like fundmanagement, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India.
  43. 43. For example equity-oriented funds can charge their investors a maximum of 2.5% perannum on a recurring basis for all their expenses; any expense above the prescribed limitis borne by the fund house and not the investors.Similarly funds also charge their investors entry and exit loads (in most cases, either isapplicable). Entry loads are charged at the timing of making an investment while the exitload is charged at the time of sale.Insurance companies have a free hand in levying expenses on their ULIP products withno upper limits being prescribed by the regulator, i.e. the Insurance Regulatory andDevelopment Authority. This explains the complex and at times unwieldy expensestructures on ULIP offerings. The only restraint placed is that insurers are required tonotify the regulator of all the expenses that will be charged on their ULIP offerings.Expenses can have far-reaching consequences on investors since higher expensestranslate into lower amounts being invested and a smaller corpus being accumulated.3. Portfolio disclosureMutual fund houses are required to statutorily declare their portfolios on a quarterly basis,albeit most fund houses do so on a monthly basis. Investors get the opportunity to seewhere their monies are being invested and how they have been managed by studying theportfolio.There is lack of consensus on whether ULIPs are required to disclose their portfolios.During ourinteractions with leading insurers we came across divergent views on this issue.While one school of thought believes that disclosing portfolios on a quarterly basis ismandatory, the other believes that there is no legal obligation to do so and that insurersare required to disclose their portfolios only on demand.
  44. 44. Some insurance companies do declare their portfolios on a monthly/quarterly basis.However the lack of transparency in ULIP investments could be a cause for concernconsidering that the amount invested in insurance policies is essentially meant to providefor contingencies and for long-term needs like retirement; regular portfolio disclosures onthe other hand can enable investors to make timely investment decisions.4. Flexibility in altering the asset allocationAs was stated earlier, offerings in both the mutual funds segment and ULIPs segment arelargelycomparable. For example plans that invest their entire corpus in equities (diversifiedequity funds), a 60:40 allotment in equity and debt instruments (balanced funds) andthose investing only in debt instruments (debt funds) can be found in both ULIPs andmutual funds.If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debtfrom the same fund house, he could have to bear an exit load and/or entry load.On the other hand most insurance companies permit their ULIP inventors to shiftinvestments across various plans/asset classes either at a nominal or no cost (usually, acouple of switches are allowed free of charge every year and a cost has to be borne foradditional switches).Effectively the ULIP investor is given the option to invest across asset classes as per hisconvenience in a cost-effective manner.This can prove to be very useful for investors, for example in a bull market when theULIP investors equity component has appreciated, he can book profits by simplytransferring the requisite amount to a debt-oriented plan.5. Tax benefits
  45. 45. ULIP investments qualify for deductions under Section 80C of the Income Tax Act. Thisholds good, irrespective of the nature of the plan chosen by the investor. On the otherhand in the mutual funds domain, only investments in tax-saving funds (also referred toas equity-linked savings schemes) are eligible for Section 80C benefits.Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for examplediversified equity funds, balanced funds), if the investments are held for a period over 12months, the gains are tax free; conversely investments sold within a 12-month periodattract short-term capital gains tax @ 10%.Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-term capital gain is taxed at the investors marginal tax rate.Despite the seemingly similar structures evidently both mutual funds and ULIPs havetheir unique set of advantages to offer. As always, it is vital for investors to be aware ofthe nuances in both offerings and make informed decisions.
  46. 46. REVIEW OF LITERATUREMr.Madhu T, made a study on ‘ULIPs hold edge over mutual funds’.The findings showsthat distributors would push unit linked insurance plans (ULIPs) to earn bettercommission. ULIPs offer attractive frontend commissions to agents. However,independent financial advisors believe that though there is a possibility of somedistributors favoring ULIPs in the short term, the new directive would be beneficial forboth the industry and investors in the long run.(Mr.Madhu T, The EconomicTimes,June2009).Mr.Deepak Shenoy ,in his article ‘Comparing ULIP returns to Mutual Funds’, he revealsthat, over the last three years, their growth mutual fund has given better returns than the"MAXIMISER" option of their ULIPs.(Deepak Shenoy, The Indian Investor’s Blog,August 2006).Mr.Murthaza and Sony, in their article ‘An Overview on ULIP’, This article is an initiativefrom Bajaj Allianz to create better understanding of ULIPs and its benefits so thatinvestors can avail maximum returns from their investments.Mr.Bernz Jayma P, made a study on ‘Mutual Fund disadvantages’. He suggested that ,’Ifyoure new to stock market investing you may have heard that mutual funds would be a
  47. 47. good way for you to get started. Thats actually good advice, but mutual funds have theirown pitfalls to watch out for.’ DATA INTERPRETATION AND ANALYSIS
  48. 48. (A) Gender: Gender Cumulative Frequency Percent Valid Percent Percent Valid Male 37 74.0 74.0 74.0 Female 13 26.0 26.0 100.0 Total 50 100.0 100.0
  49. 49. INTERPRETATION :The above graph shows that , out of 50 customers, 74% of the respondents are malepolicy holders and the rest 26% are female policy holders.(B) Marital Status: Marital Cumulative Frequency Percent Valid Percent Percent Valid Married 33 66.0 66.0 66.0 Unmarried 17 34.0 34.0 100.0 Total 50 100.0 100.0
  50. 50. INTERPRETATION :From a sample of 50 customers, 66% of the policy holders are unmarried and the rest34% of the policy holders are married.(C) Age: Age Cumulative Frequency Percent Valid Percent Percent Valid 20-30 6 12.0 12.0 12.0 30-40 14 28.0 28.0 40.0 40-50 17 34.0 34.0 74.0 50-60 11 22.0 22.0 96.0 60-70 2 4.0 4.0 100.0 Total 50 100.0 100.0
  51. 51. INTERPRETATION :The graph shows that majority of the sample respondents were in the age group of 40-50yrs ie,34%, 12% were in the age group of 20-30 yrs & 28% of them were 30-40 yrs, 22%were in the age group of 50-60 yrs and 4% were in the age group of 60-70 yrs.(D) Occupation: Occupation Cumulative Frequency Percent Valid Percent Percent Valid Government 18 36.0 36.0 36.0 Private service 14 28.0 28.0 64.0 Business 11 22.0 22.0 86.0 NRIs 3 6.0 6.0 92.0 Others 4 8.0 8.0 100.0 Total 50 100.0 100.0
  52. 52. INTERPRETATION :The graph shows that majority of the policy holders are working in the Governmentsector i.e.36% , 28% of them are engaged in Private service, 22% of them are businessfield, 6% of them are NRIs and 8% of them are engaged other works.(E) Annual Income: Annual income Cumulative Frequency Percent Valid Percent Percent Valid Below 2 lakhs 19 38.0 38.0 38.0 2-4 lakhs 23 46.0 46.0 84.0 4-6 lakhs 6 12.0 12.0 96.0 6-8 lakhs 2 4.0 4.0 100.0 Total 50 100.0 100.0
  53. 53. INTERPRETATION :The graph shows that 46% of the policy holders get a salary of 2-4 lakhs, 38% of thepolicy holders get a salary of below 2 lakhs, 12% of the policy holders get a salary of 4-6lakhs, 3 of the policy holders get a salary below 2 lakhs and 4% of them above 6-8 lakhs.1. Sources that helps you in making investment decision. Sources that helps you in making the investment decisions. Cumulative Frequency Percent Valid Percent Percent Valid Financial journal 5 10.0 10.0 10.0 Television 2 4.0 4.0 14.0 Brokers/Agent 27 54.0 54.0 68.0 Friends 13 26.0 26.0 94.0 Consultants 3 6.0 6.0 100.0 Total 50 100.0 100.0
  54. 54. INTERPRETATION :From the sample of 50 customers, 54% of the customers are strongly agree that the agentsor brokers helps them to make investment decision, 26% of the customers point out theirfriends take part in the investment decision. And 10% customers reveal that the financialjournals helps them, Remaining 6% is from consultants, and 4% selects television as thesource.2. Factors that influence your investment decision in a particularcompany. Factors that influence your investment decisions in a particular company. Cumulative Frequency Percent Valid Percent Percent Valid Attractive schemes 2 4.0 4.0 4.0 Tax benefits 27 54.0 54.0 58.0 High reputation 3 6.0 6.0 64.0 Rate of return 14 28.0 28.0 92.0 Variety of products 4 8.0 8.0 100.0 Total 50 100.0 100.0
  55. 55. INTERPRETATION : 54% customers agree that the tax benefit is influence them to buy policy ,28%looks the rate of return what they will earn, variety of products from the company attracts8% customers, and high reputation of the company attracts 6% of the customers, andremaining 4% pointing out the attractive schemes.3. You generally like to invest money in. You generally like to invest money. Cumulative Frequency Percent Valid Percent PercentValid Insurance 13 26.0 26.0 26.0 Stock market 1 2.0 2.0 28.0 Mutual fund 6 12.0 12.0 40.0 Bank deposit 28 56.0 56.0 96.0 Both insurance and mutual 2 4.0 4.0 100.0 fund Total 50 100.0 100.0
  56. 56. INTERPRETATION :From a sample of 50 customers, 56% of the customers invest money in bank deposit,26% in insurance sector,12% in mutual fund, then 4% in both insurance and mutualfund,and remaining 2% in stock market.4. According to you who among the following life insurance company isbest. According to you who among the following life insurance companies is best. Cumulative Frequency Percent Valid Percent Percent Valid Bajaj Allianz 27 54.0 54.0 54.0 HDFC Standard life 5 10.0 10.0 64.0 Tata AIG 4 8.0 8.0 72.0 Aviva Life 3 6.0 6.0 78.0 SBI Life 11 22.0 22.0 100.0 Total 50 100.0 100.0
  57. 57. INTERPRETATION :From a sample of 50 customers,54% customers select Bajaj Allianz is the best insurancecompany, and 22% customers choose SBI Life,10% select HDFC,8% for Tata AIG andremaining 6% stands for Aviva life insurance company.5. How would you rate our products. How would you rate our products. Cumulative Frequency Percent Valid Percent Percent Valid Excellent 2 4.0 4.0 4.0 Good 37 74.0 74.0 78.0 Fair 9 18.0 18.0 96.0 Poor 2 4.0 4.0 100.0 Total 50 100.0 100.0
  58. 58. INTERPRETATION :From a sample of 50 customers,74% customers thinks that the products offered by BajajAllianz Life insurance co. is good,4% thinks its excellent,18% of them select BajajAllianz products are fair, and remaining 4% not satisfied with our products.6. I would like to invest money in ULIP. I would like to invest money in ULIP. Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 2 4.0 4.0 4.0 Agree 33 66.0 66.0 70.0 Neutral 8 16.0 16.0 86.0 Disagree 5 10.0 10.0 96.0 Strongly disagree 2 4.0 4.0 100.0 Total 50 100.0 100.0
  59. 59. INTERPRETATION :From a sample of 50 customers, 66% agree, 4% of them strongly supporting that fact, and16% has no opinion about it. And 4% strongly disagreed, remaining 10% also disagreewith investment in ULIP.7. Reason for choosing ULIPs because of insurance coverage. Reason for choosing ULIPs because of insurance coverage. Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 14 28.0 28.0 28.0 Agree 32 64.0 64.0 92.0 Neutral 2 4.0 4.0 96.0 Disagree 2 4.0 4.0 100.0 Total 50 100.0 100.0
  60. 60. INTERPRETATION :From a sample of 50 customers, 64% of the customers agree, ,28% of them stronglysupport it,4% customers didn’t say anything, and remaining 4% disagree with that fact.So we can see that most of the Customers choose ULIP because of insurance coverage.8. I would like to invest money in Mutual Funds. I would like to invest money in mutual funds. Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 3 6.0 6.0 6.0 Agree 13 26.0 26.0 32.0 Neutral 14 28.0 28.0 60.0 Dsagree 18 36.0 36.0 96.0 Strongly disagree 2 4.0 4.0 100.0 Total 50 100.0 100.0
  61. 61. INTERPRETATION :From a sample of 50 customers,26% of the customers agree with that fact,6% of thecustomers strongly support it,and 28% customers have no idea about it.And remaining10% disagreed,out of this 10%, 4% strongly disagreed with it.9. Mutual funds are more risky than ULIP products. Mutual funds are more risky than ULIP products. Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 17 34.0 34.0 34.0 Agree 27 54.0 54.0 88.0 Neutral 4 8.0 8.0 96.0 disagree 2 4.0 4.0 100.0 Total 50 100.0 100.0
  62. 62. INTERPRETATION :From a sample of 50 customers,54% of the customers thinks that mutual funds are morerisky than ULIP products,34% strongly agree with this statement.8% customers have noopinion about it,and remaining 4% disagree with it.10. ULIPs have advantage over Mutual funds. ulip has advantage over mutual funds. Cumulative Frequency Percent Valid Percent PercentValid Strongly agree 12 24.0 24.0 24.0 Agree 31 62.0 62.0 86.0 Neutral 5 10.0 10.0 96.0 Disagree 2 4.0 4.0 100.0 Total 50 100.0 100.0
  63. 63. INTERPRETATION :62% of the customers agree with ULIP have advantage over mutual fund statement.24%customers strongly agree with this fact. And 4% of customers not supporting thestatement. And remaining 10% have no opinion about it.11. Do you think the safety factor is important in your investment inULIP. Safety Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 4 8.0 8.0 8.0 Agree 26 52.0 52.0 60.0 Neutral 2 4.0 4.0 64.0 Disagree 15 30.0 30.0 94.0 Strongly disagree 3 6.0 6.0 100.0 Total 50 100.0 100.0
  64. 64. INTERPRETATION :From a sample of 50 customers,52% customers agree,8% strongly agree,30% customerswere disagree with that fact,6% strongly disagree, and remaining 4% have no opinionabout safety factor is important in the investment of ULIP.12. Do you think the Liquidity factor is important in your investment inULIP. Liquidity Cumulative Frequency Percent Valid Percent PercentValid Strongly agree 3 6.0 6.0 6.0 Agree 5 10.0 10.0 16.0 Neutral 5 10.0 10.0 26.0 Disagree 30 60.0 60.0 86.0 Strongly disagree 7 14.0 14.0 100.0 Total 50 100.0 100.0
  65. 65. INTERPRETATION :From a sample of 50 customers, majority of the customers disagree i.e. 60%, 14%strongly disagree with that fact. And 6% strongly agree,10% agree,and remaining 10%neither agree nor disagree with that statement.13. Do you think the Rate of return factor is important in yourinvestment in ULIP. Rate of return Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 6 12.0 12.0 12.0 Agree 21 42.0 42.0 54.0 Neutral 3 6.0 6.0 60.0 Disagree 12 24.0 24.0 84.0 Strongly disagree 8 16.0 16.0 100.0 Total 50 100.0 100.0
  66. 66. INTERPRETATION :From a sample of 50 customers, majority of the customers agree i.e. 42%, 12% stronglyagree with that fact. And 24% disagree,16% strongly disagree, and remaining 6% neitheragree nor disagree with that statement14. Do you think the Tax savings is influence your investment decisionin ULIP. Tax savings Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 6 12.0 12.0 12.0 Agree 21 42.0 42.0 54.0 Neutral 5 10.0 10.0 64.0 Disagree 16 32.0 32.0 96.0 Strongly disagree 2 4.0 4.0 100.0 Total 50 100.0 100.0
  67. 67. INTERPRETATION :From a sample of 50 customers, majority of the customers agree i.e. 42%, 12% stronglyagree with that fact. And 32% disagree,4% strongly disagree, and remaining 10% neitheragree nor disagree with that statement15. Past scheme’s performance influence your investment decision inULIP. past schemes performance Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 8 16.0 16.0 16.0 Agree 8 16.0 16.0 32.0 Neutral 7 14.0 14.0 46.0 Disagree 23 46.0 46.0 92.0 Strongly disagree 4 8.0 8.0 100.0 Total 50 100.0 100.0
  68. 68. INTERPRETATION :From a sample of 50 customers, majority of the customers disagree i.e. 46%, 8% stronglydisagree with that fact. And 16% strongly agree,16% agree, and remaining 14% neitheragree nor disagree with that statement16. Advertisement influence the investment decision in ULIP. Advertisement Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 9 18.0 18.0 18.0 Agree 11 22.0 22.0 40.0 Neutral 19 38.0 38.0 78.0 Disagree 5 10.0 10.0 88.0 Strongly disagree 6 12.0 12.0 100.0 Total 50 100.0 100.0
  69. 69. INTERPRETATION :From a sample of 50 customers, 22%agree, 18% strongly agree with that fact. And 10%disagree,12% strongly disagree, and remaining 38% neither agree nor disagree with thatstatement.17. Do you think the safety factor is important in your investment inmutual fund. Safety Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 2 4.0 4.0 4.0 Agree 4 8.0 8.0 12.0 Neutral 8 16.0 16.0 28.0 Disagree 30 60.0 60.0 88.0 Strongly disagree 6 12.0 12.0 100.0 Total 50 100.0 100.0
  70. 70. INTERPRETATION :From a sample of 50 customers,8% customers agree,4% strongly agree,60% customerswere disagree with that fact 12% strongly disagree, and remaining 16% have no opinionabout safety factor is important in the investment of mutual fund.18. Do you think the Liquidity factor is important in your investment inmutual fund. Liquidity Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 7 14.0 14.0 14.0 Agree 19 38.0 38.0 52.0 Neutral 15 30.0 30.0 82.0 Disagree 6 12.0 12.0 94.0 Strongly disagree 3 6.0 6.0 100.0 Total 50 100.0 100.0
  71. 71. INTERPRETATION :From a sample of 50 customers, majority of the customers agree i.e. 38%, 14% stronglyagree with that fact. And 12% disagree,6% strongly disagree, and remaining 30% neitheragree nor disagree with that statement.19. Do you think the Rate of return factor is important in yourinvestment in mutual fund. Rate of return Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 2 4.0 4.0 4.0 Agree 7 14.0 14.0 18.0 Neutral 21 42.0 42.0 60.0 Disagree 15 30.0 30.0 90.0 Strongly disagree 5 10.0 10.0 100.0 Total 50 100.0 100.0
  72. 72. INTERPRETATION :From a sample of 50 customers, 30% disagree, 10% strongly disagree with that fact. And14% agree,4% strongly agree, and remaining 42% neither agree nor disagree with thatstatement.20. Do you think the Tax savings is influence your investment decisionin mutual fund. Tax savings Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 3 6.0 6.0 6.0 Agree 6 12.0 12.0 18.0 Neutral 23 46.0 46.0 64.0 Disagree 12 24.0 24.0 88.0 Strongly disagree 6 12.0 12.0 100.0 Total 50 100.0 100.0
  73. 73. INTERPRETATION :From a sample of 50 customers, 24% disagree, 12% strongly disagree with that fact. And12% agree,6% strongly agree, and remaining 46% neither agree nor disagree with thatstatement.21. Past scheme’s performance influence your investment decision inmutual fund. past schemes performance Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 6 12.0 12.0 12.0 Agree 22 44.0 44.0 56.0 Neutral 15 30.0 30.0 86.0 Disagree 7 14.0 14.0 100.0 Total 50 100.0 100.0
  74. 74. INTERPRETATION :From a sample of 50 customers, 44% agree, 12% strongly agree with that fact. And 14%disagree, and remaining 30% neither agree nor disagree with that statement.22. Advertisement influence the investment decision in mutual fund. Advertisement Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 4 8.0 8.0 8.0 Agree 16 32.0 32.0 40.0 Neutral 24 48.0 48.0 88.0 Disagree 4 8.0 8.0 96.0 Strongly disagree 2 4.0 4.0 100.0 Total 50 100.0 100.0
  75. 75. INTERPRETATION :From a sample of 50 customers, 8% strongly agree,32% agree with that fact. And 8%strongly disagree,4% disagree, and remaining 24% neither agree nor disagree with thatstatement.23. I would like to reinvest my funds in the same company again. Reinvestment in the same company again Cumulative Frequency Percent Valid Percent Percent Valid Strongly agree 23 46.0 46.0 46.0 Agree 15 30.0 30.0 76.0 Neutral 6 12.0 12.0 88.0 Disagree 4 8.0 8.0 96.0 Strongly disagree 2 4.0 4.0 100.0 Total 50 100.0 100.0
  76. 76. INTERPRETATION :46% of the customers express their satisfaction level with Bajaj Allianz service. TheyStrongly agree with the statement, 30% customers also agree with it. And 12% haveneutral situation. And remaining 12% not satisfied with Bajaj Allianz. HYPOTHESIS-1H0: There is no relationship between investment of ULIP andInsurance coverage.H1: There is relationship between investment of ULIP and insurancecoverage. CORRELATIONS Correlations I would like to Reason for invest money in choosing ULIPs ULIP. because of