acomparative analysis of ulip of bajaj allianz life insuranceco-110412011730-phpapp02

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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


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DECLARATION

I, Rajeev Joseph, do hereby declare that this project work entitled A

Comparative Analysis of ULIP of Bajaj Allianz Life Insurance Co. Ltd

with Mutual Fund is an outcome of my study and is submitted in partial

fulfillment of the requirement for the award of the degree of Master of

Business Administration, Karunya University.

I also declare that this report has not been submitted by me fully or

partially for the award of any degree, diploma, title, recognition or any other

fellowship of any other university before.

Place: Changanacherry

Date: 21-06-2009 RAJEEV JOSEPH


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ACKNOWLEDGEMENT

Initially, let me thank the almighty God for guiding me all through the

project work.

I express my deep and sincere gratitude to Ms. P.M. Anushia, Faculty

guide for providing the necessary assistance for the project.

I sincerely acknowledge my gratitude to Mr. Justin Paul, Branch

Manager of Bajaj Allianz Life Insurance Company Ltd, Changanacherry

branch and Mr. Biju Sebastian ,Sales Manager for giving me an

opportunity to do this project.

I also owe my sincere thanks to all the staff in Bajaj Allianz Life

Insurance Company Ltd, Changanacherry branch, and the faculties of the

Department of Business Administration, KARUNYA UNIVERSITY for

their valuable guidance and suggestion in the preparation of this report

and completing the same successfully.


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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


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EXECUTIVE SUMMARY

A comparative Analysis of ULIP plans of Bajaj Allianz Life Insurance with mutual

funds 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 investment

because there were no good options available for investment. Now there are many options

available for investment like life Insurance, Mutual fund, Equity market, Real estate, 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 insurance

operation.

Another option for investment available is Mutual Fund. Mutual Funds are providing good

returns. So while investing people tend more to words mutual fund as they are providing

more returns than Insurance also, with a good investment portfolio. Mutual fund companies

are providing more liquidity.

The project was taken to know about, what are the main aspects in Bajaj Allianz Life

Insurance Company, and its USP (Unique Selling Preposition).Which gives it highest

business and customers. Customers always prefer to invest in a good option and in a

company which is market leader.

After survey and analysis I came to know that most of the people go for ULIP insurance

policies to cover the risk of life, and invest it in a good Portfolio but there is big portion of

customers have taken the policies to save the taxes. And people are aware about the tax

benefits they get for insurance policies. Therefore, while investing in any Investment

option investor checks whether his money is safe or not, Mutual funds provides good

returns but investments are directly exposed to risk. As in ULIP returns are related to stock

market but they are having some insurance benefit and IRDA regulates the investment.


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Many people are getting the tax benefits in ULIP. In Mutual Fund they have to invest their

money in tax saving funds to get the tax benefit.

INTRODUCTION

To make comparison of ULIP plans with Mutual funds in Bajaj Allianz Life Insurance Co.

Ltd. and to Create awareness about Unit Linked Insurance Plan (ULIP) Benefits. The

overall goal of this project was to create awareness about investments. The Above problem

arises because every life insurance company has their products having different positive

and negative aspects.

Life Insurance is booming sector in todays economy. So the responsibilities of the

insurance companies have been increased as compare to the past. Because in past people

were taking insurance policies for protection tool only. In present scenario insurance sector

is providing more services with the basic life insurance. Bajaj Allianz Life Insurance has

number of products, which gives the right way to save the money and earn good profit by

invested premium. Today people want more services and more return on their investment.

So this insurance company is providing more value added services with the basic

insurance operation.

By doing this type of study in this Insurance sector and looking at the vast scope and

opportunity to study this booming field of Life Insurance and the growing awareness

among the public regarding insuring their life through Life insurance policies as well as the

growing contribution of Insurance in GDP of country with the number of private players

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 a

common financial goal. The money thus collected is then invested in capital market

instruments such as shares, debentures and other securities. The income earned through

these investments and the capital appreciations realized are shared by its unit holders in


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proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable

investment for the common man as it offers an opportunity to invest in a diversified,

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 awarenessis 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.

Many customers are thinking that investment in share market is very risky. As

ULIP and Mutual fund both are related to share market.


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A general preference to LIC and SBI over private players.

Hesitations on the part of respondents to disclose financial information.

INDIAN INSURANCE INDUSTRY

The history of life insurance in India dates back to 1818 when it was conceived as a means

to provide for English Widows. Interestingly in those days a higher premium was charged

for Indian lives than the non-Indian lives as Indian lives were considered more riskier for

coverage. The Bombay Mutual Life Insurance Society started its business in 1870. It was

the first company to charge same premium for both Indian and non-Indian lives. The

Oriental Assurance Company was established in 1880. The General insurance business in

India, on the other hand, can trace its roots to the Triton (Tital) Insurance Company

Limited, the first general insurance company established in the year 1850 in Calcutta by the

British. Till the end of nineteenth century insurance business was almost entirely in the

hands of overseas companies.Insurance regulation formally began in India with the passing

of the Life Insurance Companies Act of 1912 and the provident fund Act of 1912. Several

frauds during 20's and 30's sullied insurance business in India. By 1938 there were 176

insurance companies. The first comprehensive legislation was introduced with the

Insurance Act of 1938 that provided strict State Control over insurance business. The

insurance business grew at a faster pace after independence. Indian companies strengthened

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 and

provident societies under one nationalized monopoly corporation and Life Insurance

Corporation (LIC) was born. Nationalization was justified on the grounds that it would

create much needed funds for rapid industrialization. This was in conformity with the

Government's chosen path of State lead planning and development.The (non-life) insurance


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business continued to thrive with the private sector till 1972. Their operations were

restricted to organized trade and industry in large cities. The general insurance industry was

nationalized in 1972. With this, nearly 107 insurers were amalgamated and grouped into

four companies- National Insurance Company, New India Assurance Company,

OrientalInsurance Company and United India Insurance Company. These were subsidiaries

of the General Insurance Company (GIC).The general insurance business was nationalized

after the promulgation of General Insurance Business (Nationalizations) Act, 1972. The

post-nationalization general insurance business was undertaken by the General

Insurance Corporation of India (GIC) and its 4 subsidiaries:

Oriental Insurance Company Limited; New India Assurance Company Limited; National

Insurance 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 insurer

1912:

The Indian Life Assurance Companies Act enacted as the first statute to regulate the life

insurance business.

1928 :

:The Indian Insurance Companies Act enacted to enable the government to collect

statistical information about both life and non-life insurance businesses.

1938:

Earlier legislation consolidated and amended to by the Insurance Act with the objective of

protecting the interests of the insuring public.


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1956:

245 Indian and foreign insurers and provident societies taken over by the central

government 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 General

insurance business in India, on the other hand, can trace its roots to the Triton Insurance

Company Ltd., the first general insurance company established in the year 1850 in Calcutta

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 classes of

general insurance of India.

1957 :

General Insurance Council, a wing of the Insurance Association of India, frames a code of

conduct for ensuring fair conduct and sound business practices.

1968 :

The Insurance Act amended to regulate investments and set minimum solvency margins

and the Tariff Advisory Committee set up.

1972 :

The General Insurance Business (Nationalization) Act, 1972 nationalized the general

insurance business in India with effect from 1st January 1973. 107 insurers amalgamated

and grouped into four companies viz. the National Insurance Company Ltd., the New

India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India

Insurance Company Ltd. GIC incorporated as a company.


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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 future

direction. The Malhotra committee was set up with the objective of complementing the

reforms initiated in the financial sector.

1997 : Insurance regulator IRDA set up.

2000: IRDA starts giving licenses to private insurers:Kotak Life Insurance ,ICICI potential

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 allowed

to sell insurance plans.

INSURANCE MARKET PRESENT

The insurance sector was opened up for private participation seven years ago. For years

now, the private players are active in the liberalized environment. The insurance market

have witnessed dynamic changes which includes presence of a fairly large number of

insurers both life and non-life segment. Most of the private insurance companies have

formed 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, France8 ING Vysya Life Insurance Co. Ltd. ING Insurance International B.V.,

Netherlands

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.


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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

Company Ltd

Pantaloon Retail Ltd.; Sain Marketing

Network Pvt. Ltd. (SMNPL), Generali, Italy17 IDBI Fortis Life Insurance Company Ltd. Fortis, Netherlands

18 Canara HSBC OBC Life InsuranceCompany Ltd. HSBC, UK

19 Aegon Religare Life Insurance Company

Ltd.

Religare, Netherlands

20 DLF Pramerica Life Insurance Co. Ltd. Prudential of America, USA

21 Life Insurance Corporation of India

TOP 10 LIFE INSURANCE COMPANIES IN INDIA

LIC (Life Insurance Corporation of India) still remains the largest life insurance company

accounting for 64% market share. Its share, however, has dropped from 74% a year before,

mainly owing to entry of private players with innovative products and better sales force.

ICICI Prudential Life Insurance Co Ltd is the biggest private life insurance company

in India. It experienced growth of 58% in new business premium, accounting for increase

in 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 share

went up to 6.98% in 2007-08 form 5.66% in 2006-07. The company ranked second (after

LIC) 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 ranked

6th in 2007-08. New premium collection for the company was Rs 4,792.66 crore in 2007-

08, an increase of 87% over last year.

Reliance Life Insurance Co Ltd Total collected was Rs 2,792.76 crore and its market share

went up to 2.96% from 1.23% a year back. It now ranks 5th in new business premium and

4th in number of new policies sold in 2007-08.

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 th

among the insurance companies and 5th amongst the private players.

Birla Sun Life Insurance Co Ltd market share of the company increased from 1.22% to

2.11% in 2007-08.


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Max New York Life Insurance Co Ltd has reported growth of 73% in 2007-08. Total new

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 company reported

growth of 80%, moving from the 11th position to 9th. It captured a market share of 1.19%in 2007-08. Aviva Life Insurance Company India Ltd ranking dropped to 10th in 2007-08

from 9th last year. It has presence in more than 3,000 locations across India via 221

branches and close to 40 banc assurance partnerships. Aviva Life Insurance plans to

increase its capital base by Rs 344 crore.

MARKET SHARE OF VARIOUS LIFE INSURANCE COMPANIES

IN INDIA

Here is themarket share of various Life Insurance Companies in Indiaat the end of FY2008.

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%

OM Kotak 1.9%

AVIVA 1.8%

Tata AIG 1.5%

MetLife 1.4%

ING Vysya 1.2%


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Shriram Life 0.3%

Bharti Axa Life 0.2%

BOOMING INSURANCE MARKET IN INDIA

With a huge population base and large untapped market, insurance industry is a big

opportunity area in India for national as well as foreign investors. India is the fifth largest

life insurance market in the emerging insurance economies globally and is growing at 32-

34% annually. This impressive growth in the market has been driven by liberalization, with

new players significantly enhancing product awareness and promoting consumer education

and information. The strong growth potential of the country has also made international

players to look at the Indian insurance market. Moreover, saturation of insurance marketsin many developed economies has made the Indian market more attractive for international

insurance players

This research report will help the client to analyze the leading-edge opportunities critical to

the success of insurance industry in India. Based on this analysis, the report gives a future

forecast of the market that is intended as a rough guide to the direction in which the market

is likely to move.

Total life insurance premium in India is projected to grow Rs 1,230,000 Crore by 2010-11.

Total non-life insurance premium is expected to increase at a CAGR of 25% for the

period spanning from 2008-09 to 2010-11.

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.


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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 PROFILE

Bajaj Allianz Life Insurance is a union between Allianz SE, one of the largest Insurance

Company and Bajaj Finserv.

Allianz SE is a leading insurance conglomerate globally and one of the largest asset

managers in the world,managing assets worth over a Trillion(Over INR 55,00,000

Crores).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 business

philosophy is to ensure excellent insurance and investment solutions by offering

customized products, supported by the best technology.

VISION

To be the first choice insurer for customers

To be the preferred employer for staff in the insurance industry.

To be the number one insurer for creating shareholder value.

MISSION

As a responsible, customer focused market leader, we will strive to understand the insurance

needs 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.


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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 Development

Authority (IRDA) certificate of Registration on 2nd May, 2001 to conduct General

Insurance business (including Health Insurance business) in India. The Company has an

authorized and paid up capital of Rs 110 crores. Bajaj Finserv Limited holds 74% and the

remaining 26% is held by Allianz, SE.

As on 31st March 2009, Bajaj Allianz General Insurance maintained its premier position in

the industry by achieving growth as well as profitability. The company garnered a premium

income of Rs. 2866 crore, achieving a growth of 11 % over the last year. Bajaj Allianz has

made a profit before tax of Rs. 149.8 crore and has become the only private insurer to cross

the Rs.100 crore mark in profit before tax in the last two years. The profit after tax was

Rs.95 crores, which is also the highest by any private insurer. The company ranked second

(after LIC) in number of policies sold in 2007-08, with total market share of 7.36%.

RESULTS FOR CURRENT FY TILL 31ST DECEMBER 2008

The Gross Written Premiums (GWP) for the nine months ended on 31st Dec 2008, is Rs

6726 crores as compared to Rs 5219 crores in the corresponding period of the previous

year - growth of 29%. New Business premium for the nine months ended on 31st Dec 2008

is Rs. 3003 crores as compared to Rs. 3780 crores in the corresponding period of previous

year.

Commission on new business premium, which was 27% during nine months ended on 31st

Dec 2007, came down to 20% during the current period.

Operating expenses came down to 20% of GWP for the current period of nine months

ended on 31st Dec 2008 as compared to 26% for the corresponding period of previous year.

The Company posted a profit of Rs 364 lacs for the period ended 31st Dec 2008 as

compared 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 Rs 18681


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lacs) and the shareholders loss stands at Rs 15150 lacs (corresponding period of previous

year: Rs 13323 lacs).

Number of policies underwritten during the nine months ended 31st Dec 2008 were

18,08,495 (corresponding period of the previous year 23,62,496). Policies in force as on 31st Dec 2008 is around 70 lacs. The company ranked second (after LIC) in number of

policies sold in 2007-08, with total market share of 7.36%.

The share capital (including share premium) is Rs. 1211 crores as on 31st December 2008.

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. Despite challenging

environment, the company has been able to not only reduce commission but also operating

expenses. The solvency margin of the company continues to be very strong.

As on 31st Dec 2008, the Company employed on roll 22,129 staff as against 20,764 staff at

31st March 2008.The Company operates out of 1,138 offices as on 31 Dec 2008.


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PRODUCTS PROFILE

Unit Linked Plan

New family gain

New unit gain plus

New unit gain premier

Traditional plan

Invest gain

Cash gain

Child gain

Retirement Solutions

Swarna visranthi

New unit gain easy pension plus

Health Plan

Care first

Health care

Term Plan

Risk care

Term care


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UNIT LINKED INSURANCE POLICY

(ULIP)

UNIT LINKED INSURANCE POLICY (ULIP)

A unit linked insurance policy is one in which the customer is provided with a life

insurance cover and the premium paid is invested in either debt or equity products or a


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combination of the two. In other words, it enables the buyer to secure some protection for

his family in the event of his untimely death and at the same time provides him an

opportunity to earn a return on his premium paid. In the event of the insured person's

untimely death, his nominees would normally receive an amount that is the higher of the

sum assured (insurance cover) or the value of the units (investments).However, there are

some schemes in which the policyholder receives the sum assured plus the value of the

investments.

Every insurance company has four to five ULIPs with varying investment options, charges

and conditions for withdrawals and surrender. Moreover, schemes have been tailored 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, the chances

of earning a decent return are high.

Just as in the case of mutual funds, buyers who are risk averse can buy into debt schemes

while 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, administrative fees,

underwriting fees, buying and selling charges and asset management charges are fairly high

and vary from insurer to insurer in the quantum as also in the manner in which they are

charged.

Tax benefits

The premiums paid for ULIPs are eligible for tax rebates under section 80 which allows a a

maximum of Rs. 1,00,000 premiums paid for taxable income below Rs 8,50,000 and

Proceeds from ULIPs are tax-free under section 10(10D) unlike those from a mutual fund

which attract short term capital gains tax.

Key features

Premiums paid can be single, regular or variable. The payment period too can be regular or

variable. The risk cover (insurance cover) can be increased or decreased.As in all insurance

policies, the risk charge (mortality rate) varies with age. However, for an individual the risk


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charge is always based on the age of the policyholder in the year of commencement of the

policy. These charges are normally deducted on a monthly basis from the unit value. For

instance, if there is an increase in the value of units due to market conditions, the sum at

risk (sum assured less the value of investments) reduces and so the risk charges are lower.

The maturity benefit is not typically a fixed amount and the 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 to

equity). The investment risk is transferred to the policyholder.The maturity benefit is the

net asset value of the units. The value would be high or low depending on the market

conditions 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 the maturity

period in the event of the maturity value not being satisfactory.

POINTS TO REMEMBER ABOUT ULIP

First-year charges: Usually, a minimum of 15 per cent. However, high premiums attract

lower charges and vice versa. Charges can be as high as 70 per cent if the scheme affords a

lot of flexibility. Subsequent charges: Usually lower than first-year charges. However,

some insurers charge higher fees in the initial years and lower them significantly in the

subsequent years.

Administration charges: This ranges between Rs 15 per month to Rs 60 per month and is

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 per

cent 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.


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Switching charges: Some insurers allow four free switches in every year but link it to a

minimum amount. Others allow just one free switch in each year and charge Rs 100 for

every subsequent switch. Some insurers don't 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 risk

cover.

Surrender value of units: Insurers levy certain charges if the policy is surrendered

prematurely. This levy varies between insurers and could be around 75 per cent in the first

year, 60 per cent in the second year, 40 per cent in the third year and nil after the fourth

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 give

you some indication about the credibility of the fund manager because past performance is

no guarantee to future returns, especially in insurance products where the emphasis is on

long-term performance (10 years or more).

Since insurance is a product, which entails a long-term commitment on the part of the

insurer, it is important not to go only by the features or the cost advantages of schemes but

by the parentage of the insurer as well.

Comparing schemes based on costs is a fairly complex exercise. As a rule, the higher the

initial years' expenses the longer it takes for the policy to outperform its peers with low

initial years' costs and slightly higher subsequent year expenses.

Retire unhurt

Pension plans are essentially tailored to meet old age financial requirements. But there are

certain advantages in joining a pension plan.

First of all, contribution to pension funds upto Rs 10,000 is eligible for tax deduction under

section 80CCC. In other words, your pension contribution will get deducted from your

taxable income.


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So if you are in the top tax bracket, liable to pay to a 30.6 per cent tax, then your tax

savings 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 can

choose to pay the premium for five to 30 years. When the policy matures, you receive one-

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 other

insurer.

While in a conventional scheme, your money is managed through the insurer's pooled

investment account and you are entitled to bonuses every year, in a ULIP you receive the

value of the investment in your individual account.

In a ULIP you have the flexibility to choose between a conservative scheme or an

aggressive scheme with high allocation to equities. Pension policy imposes huge penalties

for early termination.

HOW DOES ULIP WORK

Sara is a thirty-year old who wants a product that will give him market-linked returns as

well as a life cover. He wants to invest Rs 50,000 a year for 10 years in an equity-based

scheme. Based on this premium, the sum assured works out to Rs 532,000, the exact

amount of premium being Rs 50,032.

Based on the current NAV of the plan that Sara chooses to invest in, he is allotted units in

the 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) and

underwriting 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 per cent

(for the first Rs 20,000 and 2 per cent for the remaining Rs 30,000) are levied in addition to

mortality charges.

Fund management fee of 1.5 per cent (equity) and brokerage are also charged. This cost is

built into the calculation of net asset value.


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On maturity - that is, after 10 years - Sara would receive the sum assured of Rs 532,000 or

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 Sara

would receive Rs 581,500; assuming the growth rate in the market value of the units to be

10 per cent, Sara would receive Rs 7,24,400.In case of Sara's untimely death at the end of the ninth year, his beneficiaries would receive

the sum assured of Rs 532,000 or the market value of the units whichever is higher.

Assuming the growth rate in the market value of units is 6 per cent per annum, the value 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 the ninth

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.

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 ULIPS

ULIPS as the name suggests are directly linked with the investments made by the insured.

Though he does not have a direct say in this but he does offer his choice in the form of

investment.


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With stock markets soaring high a few months back, ULIPs were offering a good rate of

return, but now with a sudden downfall of the stocks, ULIPs are bound to become negative

investments.

At present, a policy-holder cannot understand the growth of his investments vis--vis other

funds in the market, since there is no benchmark to measure one fund against the other.

Usually a policy-holder could ask his investment in a ULIP to be, for example, 55 per cent

in equity and 45 per cent in debt. These components can be mixed according to his 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 true representation

of the NAV, as the ULIP could be a mix of debt, liquid and equity investments.

The reality is that most of the ULIPs take more than 5 years to break even. Policies where

the costs are 65 per cent and upwards have not even recovered the principal despite the

strongest bull market we have ever witnessed.

MUTUAL FUND


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INTRODUCTION OF MUTUAL FUNDS:

A mutual fund is simply a financial intermediary that allows a group of investors to pool

their money together with a predetermined investment objective. The mutual fund will

have a fund manager who is responsible for investing the pooled money into specific

securities (usually stocks or bonds). When you invest in a mutual fund, you are buying

shares (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 cost

efficient and very easy to invest in (you don't have to figure out which stocks or bonds to

buy).

By pooling money together in a mutual fund, investors can purchase stocks or bonds with

much lower trading costs than if they tried to do it on their own. But the biggest advantage

to mutual funds is diversification.


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ACCORDING TO AMFI (ASSOCIATION OF MUTUAL FUND OF

INDIA):

A Mutual Fund is a trust that pools the savings of a number of investors who share a

common financial goal. The money thus collected is then invested in capital market

instruments such as shares, debentures and other securities. The income earned through

these investments and the capital appreciation realized is shared by its unit holders in

proportion to the number of units owned by them.

Thus a Mutual Fund is the most suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed basket of securities at a

relatively low cost. The flow chart below describes broadly the working of a mutual fund .

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


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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 skilled

professionals who are backed by a dedicated investment research team which analyses the

performance and prospects of companies and selects suitable investments to achieve the

objectives of the scheme.

2. Diversification: Mutual Funds invest in a number of companies across a broad cross

section of industries and sectors. This diversification reduces the risk because seldom do all

stocks decline at the same time and in the same proportion.You achieve this diversification

through a Mutual Fund with far less money than you can do on your own.

3. Convenient Administration: Investing in a Mutual Fund reduces paperwork and helps

you avoid many problems such as bad deliveries, delayed payments and unnecessary

follow up with brokers and companies. Mutual Funds save your time and make investing

easy and convenient.

4. Return Potential: Over a medium to longterm, Mutual Funds have the potential to

provide 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 to

directly 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 at

AssetValue (NAV) related prices from the Mutual Fund itself.With close-ended schemes,


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you can sell your units on a stock exchange at the prevailing market price or avail of the

facility of repurchase

through Mutual Funds at NAV related prices which some close-ended and interval schemes

offer you periodically.

7. Transparency: You get regular information on the value of your investment in addition

to

disclosure on the specific investments made by your scheme, the proportion invested in

each

class of assets and the fund managers investment strategy and outlook.

8. Flexibility: Through features such as Systematic Investment Plans (SIP), Systematic

Withdrawal Plans (SWP) and dividend reinvestment plans, you can systematically invest or

withdraw funds according to your needs and convenience.

9. Choice of Schemes:Mutual Funds offer a variety of schemes to suit your varying needs

over a lifetime.

10. Well Regulated:All Mutual Funds are registered with SEBI and they function within

the

provisions of strict regulations designed to protect the interests of investors.The operations

of Mutual Funds are regularly monitored by SEBI.

DISADVANTAGES OF MUTUAL FUNDS:

No Guarantees: No investment is risk free. If the entire stock market declines in

value, the value of mutual fund shares will go down as well, no matter how balanced the

portfolio. Investors encounter fewer risks when they invest in mutual funds than when they


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buy and sell stocks on their own. However, anyone who invests through a mutual fund 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 compensate

brokers, financial consultants, or financial planners. Even if you don't use a broker or other

financial adviser, you will pay a sales commission if you buy shares in a Load Fund.

Taxes: During a typical year, most actively managed mutual funds sell anywhere from

20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales,

you will pay taxes on the income you receive, even if you reinvest the money you made.

Management risk: When you invest in a mutual fund, you depend on the fund's

manager to make the right decisions regarding the fund's portfolio. If the manager does not

perform as well as you had hoped, you might not make as much money on your investment

as you expected. Of course, if you invest in Index Funds, you forego management 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 to the

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-end

Open-end Funds: An open-end fund is one that has units available for sale and repurchase

at all time. An investor can buy or redeem units from the fund itself at a price based on the

Net Asset Value (NAV) per unit.


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Close-end Funds: A close ended fund makes a one-time sale of a fixed number of unit. It

does not allow investors to buy or redeem units directly from the funds. However, to

provide liquidity to investors many closed-end funds get themselves listed on stock

exchange. Funds do offer buy-back of funds/units thus offering another avenue for

liquidity to closed-end fund investor.

II. Load vs. No Load: Marketing of a new mutual fund scheme involves initial

expense. These expenses may be recovered from the investors in different ways at different

times. Three usual ways in which a funds sales expenses may be recovered from the

investors are:

1. At the time of investors entry into the fund/scheme, by deducting a specific amount

from his initial contribution: front-end or entry load.

2. By charging the fund/scheme with a fixed amount each year, during the stated number of

years: deferred load.

3. At the time of the investors exit from the fund/scheme, by deducting a specific amount

from the redemption proceeds payable to the investor: back end or exit load These charges

made by the fund managers to the investors to cover distribution/sales/marketing expenses

are often called loads. Funds that charge front-end, back-end or deferred loads are calledload funds. Funds that make no such charges or 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 allow the

fund to meet initial issue expenses including brokers/agents/distributors commissions,

advertising and marketing expenses.

A load funds declared NAV does not include load charges

III. Tax-exempt vs. Non-Tax exempt Funds:Generally, when a fund invests in

tax-exempt securities, it is called a tax-exempt fund. In India, after the 1999 Union

Government Budget, all of the dividend income received from any of the mutual funds is

tax-free in the hands of the investors. However, funds other than Equity Funds have to pay

a distribution tax, before distributing income to investors. In other words, equity mutual


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fund schemes are tax-exempt investment avenues, while other funds are taxable for

distributable income.

Different types of mutual fund

Types of Mutual Fund:

Once we have reviewed the fund classes, we are ready to discuss more specific fund types.

Funds are generally distinguished from each other by their investment objectives and types

of securities they invest in.

A. Broad Fund Types by Nature of Investments

Mutual funds may invest in equities, bonds or other fixed income securities, or short-term

money market securities. So we have Equity, Bonds and Money Market Funds . All of them

invest in financial assets. But there are funds that invest in physical assets. For example, we

may have Gold or other Precious Metal Funds, or Real Estate Funds.

B. Broad Fund Types by Investment Objective

Investors 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 will be

unlocked in the future.

C. Broad Fund Types by Risk Profile

The nature of a funds portfolio and its investment objective imply different levels of risk

undertaken. Funds are therefore often grouped in order of risk. Thus, Equity Funds have a


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greater risk of capital loss than a Debt Fund that seeks to protect the capital while looking

for income. Money Market Funds are exposed to less risk than even the For internal use by

Training Department of Prudential ICICI Mutual Fund Bond Funds, since they invest in

short-term fixed income securities, as compared to longer-term portfolios of Bond Funds.

Money Market Funds: Lowest rung in the order of risk level, Money Market Funds invest

in securities of a short-term nature, which generally means securities of less than one-year

maturity.

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 general

category Debt Funds. Debt funds invest in debt instruments issued not only by

governments, but also by private companies, banks and financial institutions and other

entities 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 . A

diversified debt fund is less risky than a narrow-focus fund that invests in debt securities of

a particular sector or industry.

Focused Debt Funds: Some debt funds have a narrow focus, with less diversification in its

investment. Examples include sector, specialized and offshore debt funds. Other examples

of focused funds include those that invest only in Corporate Debentures and Bonds or only

in Tax Free Infrastructure or Municipal Bonds.

High yield Debt Funds: There are funds which seek to obtain higher interest rates by

investing in debt instruments that are considered below investment grade. e.g. Junk Bond

Funds.

Assured Return Funds an Indian Variant: The SEBI permits only those funds whose

sponsors have adequate net-worth to offer assurance of return. For e.g. MIPs. Investors

have some lock-in period.


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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-term

investors who otherwise place money as fixed term bank deposits or inter corporate bonds.

Equity Fund: As investors move from Debt Fund category to Equity Funds,

they face increased risk level.

No guarantee returns

High potential for growth of capital

Types of Equity Fund

a) 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 Fund

They invest in companies that meet predefined criteria.

i) Sector Funds

Technology Fund

Pharmaceutical Fund

FMCG Fund


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ii) 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

A fund that seeks to invest only in equities, except for a very small portion in liquid money

market securities, bur is not focused on any one or few sectors or shares, may be termed a

diversified equity fund. While exposed to all equity price risks, diversified equity funds

seek to reduce the sector or stock specific risks through diversification.

i) Equity Linked Savings Schemes: An Indian Variant

Investment in these schemes entitles the investor to claim an income tax rebate, but usually

has a lock-in period before the end of which funds cannot be withdrawn.

e) Equity Index Funds

An index fund tracks the performance of a specific stock market index. The objective is to

match the performance of the stock market by tracking an index that represents the overall

market. The funds invest in share that constitute the index and in the same proportion on

the index.

f) Value Funds

Value Funds try to seek out fundamentally sound companies whose shares are currently

under-prices in the market. Value Funds will add only those shares to their portfolios that

are selling at low price-earnings ratios, low market to book value ratios and are

undervalued by other yardsticks. Fund concentrate on future growth prospect having good

potential.

g) Equity Income Funds


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There are equity funds that can be designed to give the investor a high level of current

income along with some steady capital appreciation, investing mainly in shares of

companies 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.

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 ofhousing finance companies or may even buy their securities assets.

Following are the different products and services Offered by Mutual

Fund 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


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Exchange Traded Funds

Sectoral Funds

Thematic Funds

Commodity Funds

Real Estate Funds

Tax Saving Funds

Hybrid Funds

There 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.


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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.

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 every

reinvestment.

The value of units will be similar to that under the dividend option


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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.

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

investors bank accounts.


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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.

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 mutual funds

will be regulated by SEBI through SEBI (Mutual Fund) Regulations 1996.


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COMPARISON OF ULIP VS MUTUAL FUND

Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual

funds 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.

Similarly ULIP investors have the option of investing across various schemes similar to the

ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and

debt funds to name a few. Generally speaking, ULIPs can be termed as mutual fund

schemes with an insurance component.However it should not be construed that barring the insurance element there is nothing

differentiating mutual funds from ULIPs

1. Mode of investment/ investment amounts

Mutual fund investors have the option of either making lump sum investments or investing

using the systematic investment plan (SIP) route which entails commitments over longer

time horizons. The minimum investment amounts are laid out by the fund house.

ULIP investors also have the choice of investing in a lump sum (single premium) or using

the

conventional route, i.e. making premium payments on an annual, half-yearly, quarterly or

monthly basis. In ULIPs, determining the premium paid is often the starting point for the

investment activity.

This is in stark contrast to conventional insurance plans where the sum assured is the

starting point and premiums to be paid are determined thereafter.

ULIP investors also have the flexibility to alter the premium amounts during the policy's

tenure. For example an individual with access to surplus funds can enhance the

contribution thereby ensuring that his surplus funds are gainfully invested; conversely an

individual faced with a liquidity crunch has the option of paying a lower amount (the

difference being adjusted in the accumulated value of his ULIP). The freedom to modify


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premium payments at one's onvenience clearly gives ULIP investors an edge over their

mutual fund counterparts.

2. Expenses

In mutual fund investments, expenses charged for various activities like fund management,

sales and marketing, administration among others are subject to pre-determined upper

limits as prescribed by the Securities and Exchange Board of India.

For example equity-oriented funds can charge their investors a maximum of 2.5% per

annum on a recurring basis for all their expenses; any expense above the prescribed limit is

borne by the fund house and not the investors.

Similarly funds also charge their investors entry and exit loads (in most cases, either is

applicable). Entry loads are charged at the timing of making an investment while the exit

load is charged at the time of sale.

Insurance companies have a free hand in levying expenses on their ULIP products with no

upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and

Development Authority. This explains the complex and at times 'unwieldy' expense

structures 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 expenses translate

into lower amounts being invested and a smaller corpus being accumulated.

3. Portfolio disclosure

Mutual 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 see

where their monies are being invested and how they have been managed by studying the

portfolio.


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There is lack of consensus on whether ULIPs are required to disclose their portfolios.

During our

interactions with leading insurers we came across divergent views on this issue.

While one school of thought believes that disclosing portfolios on a quarterly basis is

mandatory, the other believes that there is no legal obligation to do so and that insurers are

required to disclose their portfolios only on demand.

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 concern

considering that the amount invested in insurance policies is essentially meant to provide

for contingencies and for long-term needs like retirement; regular portfolio disclosures on

the other hand can enable investors to make timely investment decisions.

4. Flexibility in altering the asset allocation

As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are

largely

comparable. For example plans that invest their entire corpus in equities (diversified equity

funds), a 60:40 allotment in equity and debt instruments (balanced funds) and those

investing only in debt instruments (debt funds) can be found in both ULIPs and mutual

funds.

If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt

from 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 shift

investments across various plans/asset classes either at a nominal or no cost (usually, a

couple of switches are allowed free of charge every year and a cost has to be borne for

additional switches).

Effectively the ULIP investor is given the option to invest across asset classes as per his

convenience in a cost-effective manner.


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This can prove to be very useful for investors, for example in a bull market when the ULIP

investor's equity component has appreciated, he can book profits by simply transferring the

requisite amount to a debt-oriented plan.

5. Tax benefits

ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This

holds good, irrespective of the nature of the plan chosen by the investor. On the other hand

in the mutual funds domain, only investments in tax-saving funds (also referred to as

equity-linked savings schemes) are eligible for Section 80C benefits.

Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example

diversified equity funds, balanced funds), if the investments are held for a period over 12

months, the gains are tax free; conversely investments sold within a 12-month period

attract 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 investor's marginal tax rate.

Despite the seemingly similar structures evidently both mutual funds and ULIPs have their

unique set of advantages to offer. As always, it is vital for investors to be aware of the

nuances in both offerings and make informed decisions.


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REVIEW OF LITERATURE

Mr.Madhu T, made a study on ULIPs hold edge over mutual funds.The findings shows

that distributors would push unit linked insurance plans (ULIPs) to earn better

commission. ULIPs offer attractive frontend commissions to agents. However, independent

financial advisors believe that though there is a possibility of some distributors favoring

ULIPs in the short term, the new directive would be beneficial for both the industry and

investors in the long run.(Mr.Madhu T, The Economic Times,June2009).

Mr.Deepak Shenoy ,in his article Comparing ULIP returns to Mutual Funds, he reveals

that,over the last three years, their growth mutual fund has given better returns than the

"MAXIMISER" option of their ULIPs.(Deepak Shenoy, The Indian Investors Blog,

August 2006).


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Mr.Murthaza and Sony, in their article An Overview on ULIP, This article is an initiative

from Bajaj Allianz to create better understanding of ULIPs and its benefits so that investors

can avail maximum returns from their investments.

Mr.Bernz Jayma P, made a study on Mutual Fund disadvantages. He suggested that ,If

you're new to stock market investing you may have heard that mutual funds would be a

good way for you to get started. That's actually good advice, but mutual funds have their

own pitfalls to watch out for.

DATA INTERPRETATION

AND

ANALYSIS


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(A) Gender:

Gender

Frequency Percent Valid Percent

Cumulative

Percent

Valid Male 37 74.0 74.0 74.0

Female 13 26.0 26.0 100.0

Total 50 100.0 100.0


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INTERPRETATION :

The above graph shows that , out of 50 customers, 74% of the respondents are male policy

holders and the rest 26% are female policy holders.

(B) Marital Status:

Marital


Cumulative

Percent

Valid Married 33 66.0 66.0 66.0

Unmarried 17 34.0 34.0 100.0

Total 50 100.0 100.0


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INTERPRETATION :

From a sample of 50 customers, 66% of the policy holders are unmarried and the rest 34%

of the policy holders are married.

(C) Age:

Age


Cumulative

PercentValid 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


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INTERPRETATION :

The graph shows that majority of the sample respondents were in the age group of 40-50

yrs 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

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


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INTERPRETATION :

The graph shows that majority of the policy holders are working in the Government sector

i.e.36% , 28% of them are engaged in Private service, 22% of them are business field, 6%

of them are NRIs and 8% of them are engaged other works.

(E) Annual Income:

Annual income


Cumulative

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


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INTERPRETATION :

The graph shows that 46% of the policy holders get a salary of 2-4 lakhs, 38% of the policy

holders get a salary of below 2 lakhs, 12% of the policy holders get a salary of 4-6 lakhs, 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

Percent

Valid Financial journal 5 10.0 10.0 10.0

Television 2 4.0 4.0 14.0Brokers/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


53/87

INTERPRETATION :

From the sample of 50 customers, 54% of the customers are strongly agree that the agents

or brokers helps them to make investment decision, 26% of the customers point out their

friends take part in the investment decision. And 10% customers reveal that the financial

journals helps them, Remaining 6% is from consultants, and 4% selects television as the

source.

2. Factors that influence your investment decision in a particular

company.

Factors that influence your investment decisions in a particular company.


Cumulative

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


54/87

Total 50 100.0 100.0

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 attracts

8% customers, and high reputation of the company attracts 6% of the customers, and

remaining 4% pointing out the attractive schemes.

3. You generally like to invest money in.

You generally like to invest money.


Cumulative

Percent

Valid Insurance 13 26.0 26.0 26.0Stock 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

fund

2 4.0 4.0 100.0

Total 50 100.0 100.0


55/87

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 mutual fund,and

remaining 2% in stock market.

4. According to you who among the following life insurance company is

best.

According to you who among the following life insurance companies is best.


Cumulative

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


56/87

INTERPRETATION :

From a sample of 50 customers,54% customers select Bajaj Allianz is the best insurance

company, and 22% customers choose SBI Life,10% select HDFC,8% for Tata AIG and

remaining 6% stands for Aviva life insurance company.

5. How would you rate our products.

How would you rate our products.


Cumulative

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


57/87

INTERPRETATION :

From a sample of 50 customers,74% customers thinks that the products offered by Bajaj

Allianz Life insurance co. is good,4% thinks its excellent,18% of them select Bajaj Allianz

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

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


58/87

INTERPRETATION :

From a sample of 50 customers, 66% agree, 4% of them strongly supporting that fact, and

16% has no opinion about it. And 4% strongly disagreed, remaining 10% also disagree

with investment in ULIP.

7. Reason for choosing ULIPs because of insurance

coverage.

Reason for choosing ULIPs because of insurance coverage.


Cumulative

Percent


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


59/87

INTERPRETATION :

From a sample of 50 customers, 64% of the customers agree, ,28% of them strongly

support it,4% customers didnt 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. Iwould like to invest money in Mutual Funds.

I would like to invest money in mutual funds.


Cumulative

Percent


Agree 13 26.0 26.0 32.0

Neutral 14 28.0 28.0 60.0

Dsagree 18 36.0 36.0 96.0


Total 50 100.0 100.0


60/87

INTERPRETATION :

From a sample of 50 customers,26% of the customers agree with that fact,6% of the

customers strongly support it,and 28% customers have no idea about it.And remaining 10%

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

Percent


Agree 27 54.0 54.0 88.0

Neutral 4 8.0 8.0 96.0disagree 2 4.0 4.0 100.0

Total 50 100.0 100.0


61/87

INTERPRETATION :

From a sample of 50 customers,54% of the customers thinks that mutual funds are more

risky than ULIP products,34% strongly agree with this statement.8% customers have no

opinion about it,and remaining 4% disagree with it.

10. ULIPs have advantage over Mutual funds.

ulip has advantage over mutual funds.


Cumulative

Percent


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


62/87

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 the statement.

And remaining 10% have no opinion about it.

11. Do you think the safety factor is important in your investment in

ULIP.

Safety


Cumulative

Percent

Valid Strongly agree 4 8.0 8.0 8.0Agree 26 52.0 52.0 60.0

Neutral 2 4.0 4.0 64.0

Disagree 15 30.0 30.0 94.0


Total 50 100.0 100.0


63/87

INTERPRETATION :

From a sample of 50 customers,52% customers agree,8% strongly agree,30% customers

were disagree with that fact,6% strongly disagree, and remaining 4% have no opinion

about safety factor is important in the investment of ULIP.

12. Do you think the Liquidity factor is important in your investment in

ULIP.

Liquidity


Cumulative

Percent


Agree 5 10.0 10.0 16.0

Neutral 5 10.0 10.0 26.0

Disagree 30 60.0 60.0 86.0


Total 50 100.0 100.0


64/87

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 your

investment in ULIP.

Rate of return


Cumulative

Percent


Agree 21 42.0 42.0 54.0

Neutral 3 6.0 6.0 60.0

Disagree 12 24.0 24.0 84.0


Total 50 100.0 100.0


65/87

INTERPRETATION :

From a sample of 50 customers, majority of the customers agree i.e. 42%, 12% strongly

agree with that fact. And 24% disagree,16% strongly disagree, and remaining 6% neither

agree nor disagree with that statement

14. Do you think the Tax savings is influence your investment decisionin ULIP.

Tax savings


Cumulative

Percent


Agree 21 42.0 42.0 54.0

Neutral 5 10.0 10.0 64.0Disagree 16 32.0 32.0 96.0


Total 50 100.0 100.0


66/87

INTERPRETATION :

From a sample of 50 customers, majority of the customers agree i.e. 42%, 12% strongly

agree with that fact. And 32% disagree,4% strongly disagree, and remaining 10% neither


15. Past schemes performance influence yourinvestment decision in ULIP.

past scheme's performance


Cumulative

Percent


Agree 8 16.0 16.0 32.0

Neutral 7 14.0 14.0 46.0

Disagree 23 46.0 46.0 92.0


Total 50 100.0 100.0


67/87

INTERPRETATION :

From a sample of 50 customers, majority of the customers disagree i.e. 46%, 8% strongly

disagree with that fact. And 16% strongly agree,16% agree, and remaining 14% neither


16. Adv

Documents

acomparative analysis of ulip of bajaj allianz life insuranceco-110412011730-phpapp02