Acknowledgement

I would like to thank employees of SUD Life insurance company for giving me an

opportunity to intern with them. The training at the company was held over a period of 45

days. During this period I was guided by the development manager Mr. Avneet Singh

Pahwa. The project report and the learning process would not have been possible without his

inputs and guidance at critical points of the project. He imparted to me the knowledge of

mutual funds and shared with me the practical marketing techniques of mutual funds. He also

made sure that I was exposed to all the distribution channels, the operational processes and

also was exposed to the sale of mutual funds. Under his guidance I was able to enhance my

marketing and inter-personal skills.

During the course of the 45 days I also came across other people who put in their time and

effort towards acclimatizing me towards the working of their organization. I express my

thanks to every one of them.

These 45 days were very important to me as it helped me in going beyond the class room and

get a practical feel of how things worked.

Executive Summary A mutual fund is a scheme in which several people invest their money for a common

financial goal. The collected money invests in the capital market, debt and the money market,

which they earned, is divided based on the number of units which they hold.

The topic of this project is “A comparative study on Mutual Funds Vs Insurance ”. The

mutual fund industry in India has seen dramatic improvements in quantity as well as quality

of product and service offerings in recent years. Along with this project also Steps of how to

invest in Mutual Fund.

An effort has been made to work on the concepts that have been taught in class

along with other useful parameters so that better study can be done.

Introduction to Star Union Dai-ichi Life Insurance Co. Ltd.

Corporate profileStar Union Dai-ichi Life Insurance Co. Ltd. (SUD Life), a joint venture between Bank of

India, Union Bank of India and the Dai-ichi Mutual Life Insurance Company. Star Union

Dai-ichi Life Insurance Co. Ltd was incorporated on 25th September, 2007. The company

received license from Insurance Regulatory and Development Authority (IRDA) on 26th Dec

2008. The launch of the company was announced in presence of Home Minister of India-

Shri P. Chidambaram on 9th February 09. Soon after its launch, in 43 working days, Star

Union Dai-ichi Life Insurance Co. completed business of 51.75 crore Premium Income.

Star Union Dai-ichi Life Insurance has a capital participation of 51% by BOI, 26% by Dai-

ichi Life and 23% by Union Bank. The Company has authorized capital of Rs. 250.00 crores.

This fulfills the solvency margin requirement of the company for the time being. Star Union

Dai-ichi Life Insurance aims to reach out to the people of India with a wide range of need-

based, affordable insurance products and contribute towards a financially secure future for all

sections of Society. In the financial year 2009-10 the company has already issued 57961

policies with Rs 232 crores of first year premium during the current year 2009-10. The

company has also secured Rs 6.08 crores as premium for Group Insurance business. The

business target of the company is to achieve Rs 600 crores of premium by 2009-10, which

would make it one of the fastest growing Insurance Companies in India. It has added more

products to its existing product portfolio by developing several new products to meet various

needs of the insuring public. The company unveiled its six new policies under Group and

Individual Insurance category and also announced strengthening its IT structure with revamp

of its existing Corporate website, and launch of three new additional portals.

NEW PRODUCTS LAUNCHED

1. INDIVIDUAL INSURANCE PLANS

i. SUD Life Instant Endowment Plan- An Individual in age group of

18- 49 years can buy this policy. As the name suggests, the procedure

to avail this plan has been kept simple, particularly keeping in mind

today’s fast pace life. Like most of the SUD Life Insurance Plans,

SUD Life Instant Endowment Plan comes with Accidental Death &

Total and Permanent Disability Benefit Rider. The other special

features of this plan are Guaranteed Surrender Value and 2% rebate

for women on the tabular premium.

ii. SUD Life Pure Term Assurance Plan- This is a Term Insurance

Plan, with sum assured ranging from Rs 500000 to Rs 24,99,000.

Individuals in age group of 18 to 60 years can avail this policy with

the term ranging from 5 to 25 years. The Sum assured is in multiples

of 1000. This plan also comes with Accidental Death & Total and

Permanent Disability Benefit Rider.

iii. SUD Life Premier Protection Plan- The Premium Rate is

comparatively lower as compared to SUD Life Term Assurance Plan

in view of the distinctively higher life expectancy and Health Care

enjoyed by the people in upper segment of society. This plan is

particularly designed for companies for KMI/ Partnership and

H.N.I’s, who desire higher security for their future. With the policy

term ranging from 5 to 25 years, the minimum sum assured for this

plan is Rs 2500000. Individuals in age group of 18 to 60 years can

avail this policy. This policy also comes with Accidental Death &

Total and Permanent Disability Benefit Rider.

2. GROUP INSURANCE PLANS

i. SUD Life Group Gratuity Plan- This scheme helps the employers

to manage the gratuity liability of their employees in a scientific way.

Along with the regular benefit of gratuity, employees can also be

entitled for death benefits through this scheme, where the estimated

amount of his gratuity till retirement is paid to his legal heir anytime

during service period. Thus this scheme is beneficial to the employers

to retain their employees.

ii. SUD Life Group Leave Encashment Plan- Working professionals

in age group of 18 to 59 years can avail this plan though their

employer. SUD Life will conduct an actuarial valuation in respect of

leave encashment liability and determine the funding requirements

which will be furnished to the organization. SUD Life will maintain a

running account for each scheme, and the contributions net of risk

premium will be credited to this account. The funds of all the running

accounts will be pooled and invested by SUD Life and interest will

be declared at the end of each year based on earnings net of expenses.

On the exit of an employee from the service of the employer, or on

encashment of leave during his service with the employer, the leave

encashment amount will be paid from the fund of the Scheme. “SUD

Life Accidental Death and Dismemberment Benefit Rider” can also

be opted for so as to compensate for loss of income resulting through

injury/dismemberment caused by accident. Moreover, if an accidental

death claim arises, the beneficiary will receive basic sum assured as

well as rider sum assured.

iii. Reverse Mortgage Loan- Annuity Plan- Reverse Mortgage Loan- Annuity Plan

aims to provide financial security to senior citizens who have assets but not

enough liquidity to lead a life with dignity. Senior citizens can approach Central

Bank of India, which is the partner bank of SUD Life, to avail a reverse mortgage

loan against their existing property. The Bank will act as a master policy holder

and buy for the senior citizens a life annuity from SUD Life. The senior citizens

do not have to repay this loan and in case the legal heirs wish to retain back the

property they need to repay the loan amount to the bank with the accrued interest

on it. Reverse Mortgage Loan- Annuity can be paid in yearly, half-yearly,

quarterly and monthly installments. There are two options under the Plan.

Through the first option, the senior citizens can receive the stated annuity

throughout their life time and no amount will be refunded thereafter. Through the

second option, senior citizens will receive comparatively lower annuity, which

will be adequately compensated for by the return of the original purchase price to

the Banks or their legal heirs thereafter as the case may be.

IT INITIATIVES FROM SUD LIFE

SUD Life is striving to create state of the art IT systems. The company is revamping its

existing Customer website to make it user friendly. Besides SUD Life is also launching its

three new portals, viz- Customer Portal, Employee Portal and Distribution Portal.

SUD Life’s Customer Portal will provide almost real time policy information to customers.

Customers can access this portal 24x7 from anywhere and will be able to see policy data,

fund details, premium due details with facility to print premium receipts, change address etc.

on real time basis. SUD Life will be the 1st Life Insurance Company to launch its customer

portal within first year of its launch.

SUD Life is also launching Distribution Portal for all distribution partners and Employee

Portal for all its employees, which will have inherent capacity of Business Intelligence to

serve business needs and to satisfy queries of customers.

Along with these initiatives SUD Life has also launched automated SMS alerts, E-Mail alerts

and a full fledged contact centre for its customers as a part of its Communication strategy and

hence fulfilling its mission of becoming a highly customer centric organization.

Rs. 250.00 crores. This fulfills the solvency margin requirement of the company for the time

being.

History of Mutual Funds The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases.

First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 Crores of assets under management. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec

87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 Crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 Crores. The Unit Trust of India with Rs.44, 541 Crores of assets under management was way ahead of other mutual funds

Fourth Phase – since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI

was bifurcated into two separate entities. One is the Specified Undertaking of

the Unit Trust of India with assets under management of Rs.29, 835 crores as at

the end of January 2003, representing broadly, the assets of US 64 scheme,

assured return and certain other schemes. The Specified Undertaking of Unit

Trust of India, functioning under an administrator and under the rules framed by

Government of India and does not come under the purview of the Mutual

Fund Regulations.

Concept of Mutual Funds

Mutual funds are institutions that collect money from several sources - individuals or institutions by issuing 'units', invest them on their behalf with predetermined investment objectives and manage the same all for a fee. They invest the money across a range of financial instruments falling into two broad categories – equity and debt. Individual people and institutions no doubt, can and do invest in equity and debt instruments by themselves but this requires time and skill on both of which there are constraints. Mutual funds emerged as professional financial intermediaries bridging the time and skill constraint. They have a team of skilled people who identify the right stocks and debt instruments and construct a portfolio that promises to deliver the best possible 'constrained' returns at the minimum possible cost. In effect, it involves outsourcing the management of money. More explicitly, the benefits of investing in equities and debt instruments are supposedly much better if done through mutual funds. This is because of the following reasons: Firstly, fund managers are more skilled. They are trained to identify the best investment options and to assess the portfolio on a continual basis; secondly, they are able to invest in a diversified portfolio consisting of 15-20 different stocks or bonds or a combination of them. For an individual such diversification reduces the risk but can demand a lot of effort and cost. Each purchase or sale invites a cost in terms of brokerage or transactional charges such as demat account fees in India. The need to possibly sell 'poor' stocks/bonds and buy 'good' stocks/bonds demands constant tracking of news and performance of each company they have invested in. Mutual funds are able to maintain and track a diversified portfolio on a constant basis with lesser costs. This is because of the pecuniary economies that they enjoy when it comes to trading and other transaction costs; thirdly, funds also provide good liquidity. An investor can sell her/his mutual fund investments and 17

receive payment on the same day with minimal transaction costs as compared to

dealing with individual securities, this totals to superior portfolio returns with

minimal cost and better liquidity.

9. Advantages Of Mutual Fund Diversification - It can help an investor diversify their portfolio with a minimum investment. Spreading investments across a range of securities can help to reduce risk. A stock mutual fund, for example, invests in many stocks .

This minimizes the risk attributed to a concentrated position. If a few securities in the mutual fund lose value or become worthless, the loss may be offset by other securities that appreciate in value. Further diversification can be achieved by investing in multiple funds which invest in different sectors. Professional Management - Mutual funds are managed and supervised by investment professional. These managers decide what securities the fund will buy and sell. This eliminates the investor of the difficult task of trying to time the market. Well regulated - Mutual funds are subject to many government regulations that protect investors from fraud. Liquidity - It's easy to get money out of a mutual fund. Convenience - we can buy mutual fund shares by mail, phone, or over the Internet. Low cost - Mutual fund expenses are often no more than 1.5 percent of our investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index Transparency - The mutual fund offer document provides all the information about the fund and the scheme. This document is also called as the prospectus or the fund offer document, and is very detailed and contains most of the relevant information that an investor would need. Choice of schemes - there are different schemes which an investor can choose from according to his investment goals and risk appetite. Tax benefits - An investor can get a tax benefit in schemes like ELSS (equity

linked saving scheme)