INTRODUCTION
Insurance may be described as a social device to reduce or eliminate risk
of loss to life and property Insurance is a collective bearing of risk Insurance is a
financial device to spread the risks and losses of few people among a large number
of people as people prefer small fixed liability instead of big uncertain and
changing liability
Insurance can be defined as a ldquolegal contract between two parties where by
one party called insurer undertakes to pay a fixed amount of money on the
happening of a particular event which may be certain or uncertainrdquo The other
party called insured pays in exchange a fixed sum known as premium Insurance is
desired to safeguard oneself and onersquos family against possible losses on account of
risks and perils It provides financial compensation for the losses suffered due to
the happening of any unforeseen events
CHARACTERSTICS OF INSURANCE
1 Sharing of risks
2 Cooperative device
3 Evaluation of risk
4 Payment on happening of a special event
1
UNIT LINKED INSURANCE PLAN
ULIP stands for Unit Linked Insurance Plans As we know that insurance is
for protecting our life from the any uncertain events like death or accident The
purpose of the normal insurance plan is just protecting the life but not ensuring any
savings for the future Many
People wanted plan which gives protection also gives the returns for their
investment So
Insurance companies come up with the ULIP plan where the premium about is
invested in the
Share market and returns better income on the maturity period
A policy which provides for life insurance where the policy value at
time varies according to the underlying assets at the time
Unit linked insurance plans (ULIP) is life insurance solution that
Provides client with the benefits of flexibility in investment
The investment is denoted as units and is represented by the value that
it has attained called as NET ASSET VALUE (NAV)
In todayrsquos times ndashULIP provides solutions for all the needs of a client
like insurance planning financial needs financial needs for childrenrsquos future and
retirement planning
BENEFITS OF UNIT LINKED PLAN
2
ULIP distinguishes itself through the multiple benefits that it provides
to the consumer The plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan (ATP)
3 Flexibility of cover continuance
4 Transparency
5 Extra protection with riders
NEED FOR THE STUDY
3
Insurance is desired to safeguard oneself and onersquos family against
possible losses on account of risks and perils It provides financial compensation
for the losses suffered due to the happening of any unforeseen events
By taking life insurance a person can have peace of mind and cot
worry about the financial consequences in case of any untimely death
In spite of all these the insurance companies are now a dayrsquos offering
the schemes which are marker linked which are otherwise popular as ULIPrsquoS
1 The study is to know what are linked insurance plans and the various
ULIPrsquoS schemes offered by RELIANCE LIFE INSURANCE
2 To study the different fund options available is all the ULIPrsquoS
offered by RELIANCE LIFE INSURANCE
3 The study is to evaluate and know the performance of marked funds
4 To suggest any measures if any based of NAV with regard to
diversification in the fundrsquos portfolio
SCOPE OF THE STUDY
4
The study was taken up to Evaluate Performance of ULIPrsquoS in life
insurance businesses which are now a dayrsquos popular The scope of the study is
restricted to the ULIPrsquoS performance along with the fundrsquos performance in
RELIANCE LIFE INSURANCE
OBJECTIVES OF THE STUDY
5
1 To discuss the relevance of insurance and private life insurance
companies
2 To identify various ULIPrsquoS offered by RELIANCE LIFE INSURANCE
3 To know the advantages and disadvantages of ULIPrsquoS at different
circumstance in the Bouncing market
4 To evaluate the performance of all the ULIPrsquoS in RELIANCE LIFE
INSURANCE
5 To know the different fund options available in ULIPrsquoS
6 To evaluate the performance of funds and itrsquos NAVrsquoS based on returns
and risk
METHODOLOGY
6
The study has been conducted by making use of both primary and
secondary data
Primary Data
The primary data has been collected by interaction with the officials of
RELIANCE LIFE INSURANCE palasa ndashkasibugga
Secondary Data
Secondary data has been collected from RELIANCE LIFE INSURANCE
broachers from internet web site wwwRLScom and news papers and magazines
LIMITATIONS OF THE STUDY
7
In spite of honest and sincere efforts there are some limitations as stated
below
There is no depth information given in the investment options by the branch
The company has not disclosed the total statistical information with regard
to the fund performance
INDUSTRY PROFILE
8
11 MEANING OF INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of loss to
life and property Insurance is a collective bearing of risk Insurance is a financial
device to spread the risks and losses of few people among a large number of
people as people prefer small fixed liability instead of big uncertain and changing
liability Insurance can be defined as a ldquolegal contract between two parties where
by one party called insurer undertakes to pay a fixed amount of money on the
happening of a particular event which may be certain or uncertainrdquo The other
party called insured pays in exchange a fixed sum known as premium Insurance is
desired to safeguard oneself and onersquos family against possible losses on account of
risks and perils It provides financial compensation for the losses suffered due to
the happening of any unforeseen events
12 IMPORTANCE OF INSURANCE
Insurance constitutes one of the major segments of the financial market Insurance
services play predominant role in the process of financial intermediary Today
insurance industry is one of the most growing sectors in India There is lot of
potential in the Indian Insurance Industry There are many issues which require
study The scope of the study of insurance industry of India would be very great as
there are ongoing developments in the industry after the opening of the sector The
major issue right now is the hike in FDI (Foreign Direct Investment) limit from
26 to 49 in the insurance sector Government may in near future allow 49
FDI in Insurance This would lead to more capital inflow by foreign partners
Another major issue is the effects on LIC after the entry of private players in the
9
market Though market share of LIC has been affected it has improved There are
number of other hot topics like penetration of Health Insurance Rural marketing of
insurance new distribution channels new product ranges insurance brokersrsquo
regulation incentive scheme of development officers of LIC etc So it offers lot of
scope for studying the insurance industry Right now the insurance industry has
great opportunities in a country like India or China which huge population Also
the penetration of insurance in India is very low in both life and non-life segment
so there is lot potential tube tapped Before starting the discussion on insurance
industry and related issues we have to start with the basics of insurance
So first we understand what is insurance How the word lsquoinsurancersquo is different
from the word
lsquoAssurancersquo etc
LIFE INSURANCE
As is evident from its very name it deals with insurance of human life ldquoLife
insurance corporation of Indiardquo- a public sector undertaking has the monopoly in
this sector since its nationalization In our wordily life whenever there is
uncertainty there is an involvement of risk The instinct for security against such
risk is one of the basic motivating forces determining human attitudes As a squeal
to this quest for Security the concept of insurance must have been born The urge
to provide insurance or protection against the loss of life amp property must have
prompted people to make some sort of sacrifice willingly in order to achieve
security through ldquoCOLLECTIVE CO-OPERATIONrdquo in this sense story of
insurance is probably as old as the story of mankind All life insurance companies
in India have to comply with the strict regulations laid out by Insurance Regulatory
and Development Authority of India (IRDA) Therefore there is no risk in going in
10
for private insurance players In terms of being rated for financial strength like
international players only ICICI Prudential is rated by Fitch India at National
Insurer Financial Strength Rating of AAA (Indi) with stable outlook indicating the
highest claims paying ability
50
10
4
5
5
6
42
13
1 8
MARKET SHARE
LIC-50ICICI PRODENTIAL-10BAJAJALLIANZ-4SBI LIFE-5RELIANCE-5HDFC STANDARD LIFE-6BIRLA SUN LIFE-4TATA-2MET-1MAX NEWYORK-3KOTAK MAGINDRA-2OTHER-8
Figure 2 The market share of the Indian Life Insurance industry (figures are
approximate) (Source As per a report published in 2010 by Ms Pinky Walia-
Financial Advisor
11DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances
From 1826 the term assurance came to be used only for the risks covered by life
insurance and the term insurance was exclusively used to denote the risks covered
by marine fire etc The word assurance indicated certainty In life insurance there
is an assurance from the insurance company to make payment under the policy
11
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
UNIT LINKED INSURANCE PLAN
ULIP stands for Unit Linked Insurance Plans As we know that insurance is
for protecting our life from the any uncertain events like death or accident The
purpose of the normal insurance plan is just protecting the life but not ensuring any
savings for the future Many
People wanted plan which gives protection also gives the returns for their
investment So
Insurance companies come up with the ULIP plan where the premium about is
invested in the
Share market and returns better income on the maturity period
A policy which provides for life insurance where the policy value at
time varies according to the underlying assets at the time
Unit linked insurance plans (ULIP) is life insurance solution that
Provides client with the benefits of flexibility in investment
The investment is denoted as units and is represented by the value that
it has attained called as NET ASSET VALUE (NAV)
In todayrsquos times ndashULIP provides solutions for all the needs of a client
like insurance planning financial needs financial needs for childrenrsquos future and
retirement planning
BENEFITS OF UNIT LINKED PLAN
2
ULIP distinguishes itself through the multiple benefits that it provides
to the consumer The plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan (ATP)
3 Flexibility of cover continuance
4 Transparency
5 Extra protection with riders
NEED FOR THE STUDY
3
Insurance is desired to safeguard oneself and onersquos family against
possible losses on account of risks and perils It provides financial compensation
for the losses suffered due to the happening of any unforeseen events
By taking life insurance a person can have peace of mind and cot
worry about the financial consequences in case of any untimely death
In spite of all these the insurance companies are now a dayrsquos offering
the schemes which are marker linked which are otherwise popular as ULIPrsquoS
1 The study is to know what are linked insurance plans and the various
ULIPrsquoS schemes offered by RELIANCE LIFE INSURANCE
2 To study the different fund options available is all the ULIPrsquoS
offered by RELIANCE LIFE INSURANCE
3 The study is to evaluate and know the performance of marked funds
4 To suggest any measures if any based of NAV with regard to
diversification in the fundrsquos portfolio
SCOPE OF THE STUDY
4
The study was taken up to Evaluate Performance of ULIPrsquoS in life
insurance businesses which are now a dayrsquos popular The scope of the study is
restricted to the ULIPrsquoS performance along with the fundrsquos performance in
RELIANCE LIFE INSURANCE
OBJECTIVES OF THE STUDY
5
1 To discuss the relevance of insurance and private life insurance
companies
2 To identify various ULIPrsquoS offered by RELIANCE LIFE INSURANCE
3 To know the advantages and disadvantages of ULIPrsquoS at different
circumstance in the Bouncing market
4 To evaluate the performance of all the ULIPrsquoS in RELIANCE LIFE
INSURANCE
5 To know the different fund options available in ULIPrsquoS
6 To evaluate the performance of funds and itrsquos NAVrsquoS based on returns
and risk
METHODOLOGY
6
The study has been conducted by making use of both primary and
secondary data
Primary Data
The primary data has been collected by interaction with the officials of
RELIANCE LIFE INSURANCE palasa ndashkasibugga
Secondary Data
Secondary data has been collected from RELIANCE LIFE INSURANCE
broachers from internet web site wwwRLScom and news papers and magazines
LIMITATIONS OF THE STUDY
7
In spite of honest and sincere efforts there are some limitations as stated
below
There is no depth information given in the investment options by the branch
The company has not disclosed the total statistical information with regard
to the fund performance
INDUSTRY PROFILE
8
11 MEANING OF INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of loss to
life and property Insurance is a collective bearing of risk Insurance is a financial
device to spread the risks and losses of few people among a large number of
people as people prefer small fixed liability instead of big uncertain and changing
liability Insurance can be defined as a ldquolegal contract between two parties where
by one party called insurer undertakes to pay a fixed amount of money on the
happening of a particular event which may be certain or uncertainrdquo The other
party called insured pays in exchange a fixed sum known as premium Insurance is
desired to safeguard oneself and onersquos family against possible losses on account of
risks and perils It provides financial compensation for the losses suffered due to
the happening of any unforeseen events
12 IMPORTANCE OF INSURANCE
Insurance constitutes one of the major segments of the financial market Insurance
services play predominant role in the process of financial intermediary Today
insurance industry is one of the most growing sectors in India There is lot of
potential in the Indian Insurance Industry There are many issues which require
study The scope of the study of insurance industry of India would be very great as
there are ongoing developments in the industry after the opening of the sector The
major issue right now is the hike in FDI (Foreign Direct Investment) limit from
26 to 49 in the insurance sector Government may in near future allow 49
FDI in Insurance This would lead to more capital inflow by foreign partners
Another major issue is the effects on LIC after the entry of private players in the
9
market Though market share of LIC has been affected it has improved There are
number of other hot topics like penetration of Health Insurance Rural marketing of
insurance new distribution channels new product ranges insurance brokersrsquo
regulation incentive scheme of development officers of LIC etc So it offers lot of
scope for studying the insurance industry Right now the insurance industry has
great opportunities in a country like India or China which huge population Also
the penetration of insurance in India is very low in both life and non-life segment
so there is lot potential tube tapped Before starting the discussion on insurance
industry and related issues we have to start with the basics of insurance
So first we understand what is insurance How the word lsquoinsurancersquo is different
from the word
lsquoAssurancersquo etc
LIFE INSURANCE
As is evident from its very name it deals with insurance of human life ldquoLife
insurance corporation of Indiardquo- a public sector undertaking has the monopoly in
this sector since its nationalization In our wordily life whenever there is
uncertainty there is an involvement of risk The instinct for security against such
risk is one of the basic motivating forces determining human attitudes As a squeal
to this quest for Security the concept of insurance must have been born The urge
to provide insurance or protection against the loss of life amp property must have
prompted people to make some sort of sacrifice willingly in order to achieve
security through ldquoCOLLECTIVE CO-OPERATIONrdquo in this sense story of
insurance is probably as old as the story of mankind All life insurance companies
in India have to comply with the strict regulations laid out by Insurance Regulatory
and Development Authority of India (IRDA) Therefore there is no risk in going in
10
for private insurance players In terms of being rated for financial strength like
international players only ICICI Prudential is rated by Fitch India at National
Insurer Financial Strength Rating of AAA (Indi) with stable outlook indicating the
highest claims paying ability
50
10
4
5
5
6
42
13
1 8
MARKET SHARE
LIC-50ICICI PRODENTIAL-10BAJAJALLIANZ-4SBI LIFE-5RELIANCE-5HDFC STANDARD LIFE-6BIRLA SUN LIFE-4TATA-2MET-1MAX NEWYORK-3KOTAK MAGINDRA-2OTHER-8
Figure 2 The market share of the Indian Life Insurance industry (figures are
approximate) (Source As per a report published in 2010 by Ms Pinky Walia-
Financial Advisor
11DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances
From 1826 the term assurance came to be used only for the risks covered by life
insurance and the term insurance was exclusively used to denote the risks covered
by marine fire etc The word assurance indicated certainty In life insurance there
is an assurance from the insurance company to make payment under the policy
11
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
ULIP distinguishes itself through the multiple benefits that it provides
to the consumer The plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan (ATP)
3 Flexibility of cover continuance
4 Transparency
5 Extra protection with riders
NEED FOR THE STUDY
3
Insurance is desired to safeguard oneself and onersquos family against
possible losses on account of risks and perils It provides financial compensation
for the losses suffered due to the happening of any unforeseen events
By taking life insurance a person can have peace of mind and cot
worry about the financial consequences in case of any untimely death
In spite of all these the insurance companies are now a dayrsquos offering
the schemes which are marker linked which are otherwise popular as ULIPrsquoS
1 The study is to know what are linked insurance plans and the various
ULIPrsquoS schemes offered by RELIANCE LIFE INSURANCE
2 To study the different fund options available is all the ULIPrsquoS
offered by RELIANCE LIFE INSURANCE
3 The study is to evaluate and know the performance of marked funds
4 To suggest any measures if any based of NAV with regard to
diversification in the fundrsquos portfolio
SCOPE OF THE STUDY
4
The study was taken up to Evaluate Performance of ULIPrsquoS in life
insurance businesses which are now a dayrsquos popular The scope of the study is
restricted to the ULIPrsquoS performance along with the fundrsquos performance in
RELIANCE LIFE INSURANCE
OBJECTIVES OF THE STUDY
5
1 To discuss the relevance of insurance and private life insurance
companies
2 To identify various ULIPrsquoS offered by RELIANCE LIFE INSURANCE
3 To know the advantages and disadvantages of ULIPrsquoS at different
circumstance in the Bouncing market
4 To evaluate the performance of all the ULIPrsquoS in RELIANCE LIFE
INSURANCE
5 To know the different fund options available in ULIPrsquoS
6 To evaluate the performance of funds and itrsquos NAVrsquoS based on returns
and risk
METHODOLOGY
6
The study has been conducted by making use of both primary and
secondary data
Primary Data
The primary data has been collected by interaction with the officials of
RELIANCE LIFE INSURANCE palasa ndashkasibugga
Secondary Data
Secondary data has been collected from RELIANCE LIFE INSURANCE
broachers from internet web site wwwRLScom and news papers and magazines
LIMITATIONS OF THE STUDY
7
In spite of honest and sincere efforts there are some limitations as stated
below
There is no depth information given in the investment options by the branch
The company has not disclosed the total statistical information with regard
to the fund performance
INDUSTRY PROFILE
8
11 MEANING OF INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of loss to
life and property Insurance is a collective bearing of risk Insurance is a financial
device to spread the risks and losses of few people among a large number of
people as people prefer small fixed liability instead of big uncertain and changing
liability Insurance can be defined as a ldquolegal contract between two parties where
by one party called insurer undertakes to pay a fixed amount of money on the
happening of a particular event which may be certain or uncertainrdquo The other
party called insured pays in exchange a fixed sum known as premium Insurance is
desired to safeguard oneself and onersquos family against possible losses on account of
risks and perils It provides financial compensation for the losses suffered due to
the happening of any unforeseen events
12 IMPORTANCE OF INSURANCE
Insurance constitutes one of the major segments of the financial market Insurance
services play predominant role in the process of financial intermediary Today
insurance industry is one of the most growing sectors in India There is lot of
potential in the Indian Insurance Industry There are many issues which require
study The scope of the study of insurance industry of India would be very great as
there are ongoing developments in the industry after the opening of the sector The
major issue right now is the hike in FDI (Foreign Direct Investment) limit from
26 to 49 in the insurance sector Government may in near future allow 49
FDI in Insurance This would lead to more capital inflow by foreign partners
Another major issue is the effects on LIC after the entry of private players in the
9
market Though market share of LIC has been affected it has improved There are
number of other hot topics like penetration of Health Insurance Rural marketing of
insurance new distribution channels new product ranges insurance brokersrsquo
regulation incentive scheme of development officers of LIC etc So it offers lot of
scope for studying the insurance industry Right now the insurance industry has
great opportunities in a country like India or China which huge population Also
the penetration of insurance in India is very low in both life and non-life segment
so there is lot potential tube tapped Before starting the discussion on insurance
industry and related issues we have to start with the basics of insurance
So first we understand what is insurance How the word lsquoinsurancersquo is different
from the word
lsquoAssurancersquo etc
LIFE INSURANCE
As is evident from its very name it deals with insurance of human life ldquoLife
insurance corporation of Indiardquo- a public sector undertaking has the monopoly in
this sector since its nationalization In our wordily life whenever there is
uncertainty there is an involvement of risk The instinct for security against such
risk is one of the basic motivating forces determining human attitudes As a squeal
to this quest for Security the concept of insurance must have been born The urge
to provide insurance or protection against the loss of life amp property must have
prompted people to make some sort of sacrifice willingly in order to achieve
security through ldquoCOLLECTIVE CO-OPERATIONrdquo in this sense story of
insurance is probably as old as the story of mankind All life insurance companies
in India have to comply with the strict regulations laid out by Insurance Regulatory
and Development Authority of India (IRDA) Therefore there is no risk in going in
10
for private insurance players In terms of being rated for financial strength like
international players only ICICI Prudential is rated by Fitch India at National
Insurer Financial Strength Rating of AAA (Indi) with stable outlook indicating the
highest claims paying ability
50
10
4
5
5
6
42
13
1 8
MARKET SHARE
LIC-50ICICI PRODENTIAL-10BAJAJALLIANZ-4SBI LIFE-5RELIANCE-5HDFC STANDARD LIFE-6BIRLA SUN LIFE-4TATA-2MET-1MAX NEWYORK-3KOTAK MAGINDRA-2OTHER-8
Figure 2 The market share of the Indian Life Insurance industry (figures are
approximate) (Source As per a report published in 2010 by Ms Pinky Walia-
Financial Advisor
11DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances
From 1826 the term assurance came to be used only for the risks covered by life
insurance and the term insurance was exclusively used to denote the risks covered
by marine fire etc The word assurance indicated certainty In life insurance there
is an assurance from the insurance company to make payment under the policy
11
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Insurance is desired to safeguard oneself and onersquos family against
possible losses on account of risks and perils It provides financial compensation
for the losses suffered due to the happening of any unforeseen events
By taking life insurance a person can have peace of mind and cot
worry about the financial consequences in case of any untimely death
In spite of all these the insurance companies are now a dayrsquos offering
the schemes which are marker linked which are otherwise popular as ULIPrsquoS
1 The study is to know what are linked insurance plans and the various
ULIPrsquoS schemes offered by RELIANCE LIFE INSURANCE
2 To study the different fund options available is all the ULIPrsquoS
offered by RELIANCE LIFE INSURANCE
3 The study is to evaluate and know the performance of marked funds
4 To suggest any measures if any based of NAV with regard to
diversification in the fundrsquos portfolio
SCOPE OF THE STUDY
4
The study was taken up to Evaluate Performance of ULIPrsquoS in life
insurance businesses which are now a dayrsquos popular The scope of the study is
restricted to the ULIPrsquoS performance along with the fundrsquos performance in
RELIANCE LIFE INSURANCE
OBJECTIVES OF THE STUDY
5
1 To discuss the relevance of insurance and private life insurance
companies
2 To identify various ULIPrsquoS offered by RELIANCE LIFE INSURANCE
3 To know the advantages and disadvantages of ULIPrsquoS at different
circumstance in the Bouncing market
4 To evaluate the performance of all the ULIPrsquoS in RELIANCE LIFE
INSURANCE
5 To know the different fund options available in ULIPrsquoS
6 To evaluate the performance of funds and itrsquos NAVrsquoS based on returns
and risk
METHODOLOGY
6
The study has been conducted by making use of both primary and
secondary data
Primary Data
The primary data has been collected by interaction with the officials of
RELIANCE LIFE INSURANCE palasa ndashkasibugga
Secondary Data
Secondary data has been collected from RELIANCE LIFE INSURANCE
broachers from internet web site wwwRLScom and news papers and magazines
LIMITATIONS OF THE STUDY
7
In spite of honest and sincere efforts there are some limitations as stated
below
There is no depth information given in the investment options by the branch
The company has not disclosed the total statistical information with regard
to the fund performance
INDUSTRY PROFILE
8
11 MEANING OF INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of loss to
life and property Insurance is a collective bearing of risk Insurance is a financial
device to spread the risks and losses of few people among a large number of
people as people prefer small fixed liability instead of big uncertain and changing
liability Insurance can be defined as a ldquolegal contract between two parties where
by one party called insurer undertakes to pay a fixed amount of money on the
happening of a particular event which may be certain or uncertainrdquo The other
party called insured pays in exchange a fixed sum known as premium Insurance is
desired to safeguard oneself and onersquos family against possible losses on account of
risks and perils It provides financial compensation for the losses suffered due to
the happening of any unforeseen events
12 IMPORTANCE OF INSURANCE
Insurance constitutes one of the major segments of the financial market Insurance
services play predominant role in the process of financial intermediary Today
insurance industry is one of the most growing sectors in India There is lot of
potential in the Indian Insurance Industry There are many issues which require
study The scope of the study of insurance industry of India would be very great as
there are ongoing developments in the industry after the opening of the sector The
major issue right now is the hike in FDI (Foreign Direct Investment) limit from
26 to 49 in the insurance sector Government may in near future allow 49
FDI in Insurance This would lead to more capital inflow by foreign partners
Another major issue is the effects on LIC after the entry of private players in the
9
market Though market share of LIC has been affected it has improved There are
number of other hot topics like penetration of Health Insurance Rural marketing of
insurance new distribution channels new product ranges insurance brokersrsquo
regulation incentive scheme of development officers of LIC etc So it offers lot of
scope for studying the insurance industry Right now the insurance industry has
great opportunities in a country like India or China which huge population Also
the penetration of insurance in India is very low in both life and non-life segment
so there is lot potential tube tapped Before starting the discussion on insurance
industry and related issues we have to start with the basics of insurance
So first we understand what is insurance How the word lsquoinsurancersquo is different
from the word
lsquoAssurancersquo etc
LIFE INSURANCE
As is evident from its very name it deals with insurance of human life ldquoLife
insurance corporation of Indiardquo- a public sector undertaking has the monopoly in
this sector since its nationalization In our wordily life whenever there is
uncertainty there is an involvement of risk The instinct for security against such
risk is one of the basic motivating forces determining human attitudes As a squeal
to this quest for Security the concept of insurance must have been born The urge
to provide insurance or protection against the loss of life amp property must have
prompted people to make some sort of sacrifice willingly in order to achieve
security through ldquoCOLLECTIVE CO-OPERATIONrdquo in this sense story of
insurance is probably as old as the story of mankind All life insurance companies
in India have to comply with the strict regulations laid out by Insurance Regulatory
and Development Authority of India (IRDA) Therefore there is no risk in going in
10
for private insurance players In terms of being rated for financial strength like
international players only ICICI Prudential is rated by Fitch India at National
Insurer Financial Strength Rating of AAA (Indi) with stable outlook indicating the
highest claims paying ability
50
10
4
5
5
6
42
13
1 8
MARKET SHARE
LIC-50ICICI PRODENTIAL-10BAJAJALLIANZ-4SBI LIFE-5RELIANCE-5HDFC STANDARD LIFE-6BIRLA SUN LIFE-4TATA-2MET-1MAX NEWYORK-3KOTAK MAGINDRA-2OTHER-8
Figure 2 The market share of the Indian Life Insurance industry (figures are
approximate) (Source As per a report published in 2010 by Ms Pinky Walia-
Financial Advisor
11DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances
From 1826 the term assurance came to be used only for the risks covered by life
insurance and the term insurance was exclusively used to denote the risks covered
by marine fire etc The word assurance indicated certainty In life insurance there
is an assurance from the insurance company to make payment under the policy
11
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
The study was taken up to Evaluate Performance of ULIPrsquoS in life
insurance businesses which are now a dayrsquos popular The scope of the study is
restricted to the ULIPrsquoS performance along with the fundrsquos performance in
RELIANCE LIFE INSURANCE
OBJECTIVES OF THE STUDY
5
1 To discuss the relevance of insurance and private life insurance
companies
2 To identify various ULIPrsquoS offered by RELIANCE LIFE INSURANCE
3 To know the advantages and disadvantages of ULIPrsquoS at different
circumstance in the Bouncing market
4 To evaluate the performance of all the ULIPrsquoS in RELIANCE LIFE
INSURANCE
5 To know the different fund options available in ULIPrsquoS
6 To evaluate the performance of funds and itrsquos NAVrsquoS based on returns
and risk
METHODOLOGY
6
The study has been conducted by making use of both primary and
secondary data
Primary Data
The primary data has been collected by interaction with the officials of
RELIANCE LIFE INSURANCE palasa ndashkasibugga
Secondary Data
Secondary data has been collected from RELIANCE LIFE INSURANCE
broachers from internet web site wwwRLScom and news papers and magazines
LIMITATIONS OF THE STUDY
7
In spite of honest and sincere efforts there are some limitations as stated
below
There is no depth information given in the investment options by the branch
The company has not disclosed the total statistical information with regard
to the fund performance
INDUSTRY PROFILE
8
11 MEANING OF INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of loss to
life and property Insurance is a collective bearing of risk Insurance is a financial
device to spread the risks and losses of few people among a large number of
people as people prefer small fixed liability instead of big uncertain and changing
liability Insurance can be defined as a ldquolegal contract between two parties where
by one party called insurer undertakes to pay a fixed amount of money on the
happening of a particular event which may be certain or uncertainrdquo The other
party called insured pays in exchange a fixed sum known as premium Insurance is
desired to safeguard oneself and onersquos family against possible losses on account of
risks and perils It provides financial compensation for the losses suffered due to
the happening of any unforeseen events
12 IMPORTANCE OF INSURANCE
Insurance constitutes one of the major segments of the financial market Insurance
services play predominant role in the process of financial intermediary Today
insurance industry is one of the most growing sectors in India There is lot of
potential in the Indian Insurance Industry There are many issues which require
study The scope of the study of insurance industry of India would be very great as
there are ongoing developments in the industry after the opening of the sector The
major issue right now is the hike in FDI (Foreign Direct Investment) limit from
26 to 49 in the insurance sector Government may in near future allow 49
FDI in Insurance This would lead to more capital inflow by foreign partners
Another major issue is the effects on LIC after the entry of private players in the
9
market Though market share of LIC has been affected it has improved There are
number of other hot topics like penetration of Health Insurance Rural marketing of
insurance new distribution channels new product ranges insurance brokersrsquo
regulation incentive scheme of development officers of LIC etc So it offers lot of
scope for studying the insurance industry Right now the insurance industry has
great opportunities in a country like India or China which huge population Also
the penetration of insurance in India is very low in both life and non-life segment
so there is lot potential tube tapped Before starting the discussion on insurance
industry and related issues we have to start with the basics of insurance
So first we understand what is insurance How the word lsquoinsurancersquo is different
from the word
lsquoAssurancersquo etc
LIFE INSURANCE
As is evident from its very name it deals with insurance of human life ldquoLife
insurance corporation of Indiardquo- a public sector undertaking has the monopoly in
this sector since its nationalization In our wordily life whenever there is
uncertainty there is an involvement of risk The instinct for security against such
risk is one of the basic motivating forces determining human attitudes As a squeal
to this quest for Security the concept of insurance must have been born The urge
to provide insurance or protection against the loss of life amp property must have
prompted people to make some sort of sacrifice willingly in order to achieve
security through ldquoCOLLECTIVE CO-OPERATIONrdquo in this sense story of
insurance is probably as old as the story of mankind All life insurance companies
in India have to comply with the strict regulations laid out by Insurance Regulatory
and Development Authority of India (IRDA) Therefore there is no risk in going in
10
for private insurance players In terms of being rated for financial strength like
international players only ICICI Prudential is rated by Fitch India at National
Insurer Financial Strength Rating of AAA (Indi) with stable outlook indicating the
highest claims paying ability
50
10
4
5
5
6
42
13
1 8
MARKET SHARE
LIC-50ICICI PRODENTIAL-10BAJAJALLIANZ-4SBI LIFE-5RELIANCE-5HDFC STANDARD LIFE-6BIRLA SUN LIFE-4TATA-2MET-1MAX NEWYORK-3KOTAK MAGINDRA-2OTHER-8
Figure 2 The market share of the Indian Life Insurance industry (figures are
approximate) (Source As per a report published in 2010 by Ms Pinky Walia-
Financial Advisor
11DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances
From 1826 the term assurance came to be used only for the risks covered by life
insurance and the term insurance was exclusively used to denote the risks covered
by marine fire etc The word assurance indicated certainty In life insurance there
is an assurance from the insurance company to make payment under the policy
11
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
1 To discuss the relevance of insurance and private life insurance
companies
2 To identify various ULIPrsquoS offered by RELIANCE LIFE INSURANCE
3 To know the advantages and disadvantages of ULIPrsquoS at different
circumstance in the Bouncing market
4 To evaluate the performance of all the ULIPrsquoS in RELIANCE LIFE
INSURANCE
5 To know the different fund options available in ULIPrsquoS
6 To evaluate the performance of funds and itrsquos NAVrsquoS based on returns
and risk
METHODOLOGY
6
The study has been conducted by making use of both primary and
secondary data
Primary Data
The primary data has been collected by interaction with the officials of
RELIANCE LIFE INSURANCE palasa ndashkasibugga
Secondary Data
Secondary data has been collected from RELIANCE LIFE INSURANCE
broachers from internet web site wwwRLScom and news papers and magazines
LIMITATIONS OF THE STUDY
7
In spite of honest and sincere efforts there are some limitations as stated
below
There is no depth information given in the investment options by the branch
The company has not disclosed the total statistical information with regard
to the fund performance
INDUSTRY PROFILE
8
11 MEANING OF INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of loss to
life and property Insurance is a collective bearing of risk Insurance is a financial
device to spread the risks and losses of few people among a large number of
people as people prefer small fixed liability instead of big uncertain and changing
liability Insurance can be defined as a ldquolegal contract between two parties where
by one party called insurer undertakes to pay a fixed amount of money on the
happening of a particular event which may be certain or uncertainrdquo The other
party called insured pays in exchange a fixed sum known as premium Insurance is
desired to safeguard oneself and onersquos family against possible losses on account of
risks and perils It provides financial compensation for the losses suffered due to
the happening of any unforeseen events
12 IMPORTANCE OF INSURANCE
Insurance constitutes one of the major segments of the financial market Insurance
services play predominant role in the process of financial intermediary Today
insurance industry is one of the most growing sectors in India There is lot of
potential in the Indian Insurance Industry There are many issues which require
study The scope of the study of insurance industry of India would be very great as
there are ongoing developments in the industry after the opening of the sector The
major issue right now is the hike in FDI (Foreign Direct Investment) limit from
26 to 49 in the insurance sector Government may in near future allow 49
FDI in Insurance This would lead to more capital inflow by foreign partners
Another major issue is the effects on LIC after the entry of private players in the
9
market Though market share of LIC has been affected it has improved There are
number of other hot topics like penetration of Health Insurance Rural marketing of
insurance new distribution channels new product ranges insurance brokersrsquo
regulation incentive scheme of development officers of LIC etc So it offers lot of
scope for studying the insurance industry Right now the insurance industry has
great opportunities in a country like India or China which huge population Also
the penetration of insurance in India is very low in both life and non-life segment
so there is lot potential tube tapped Before starting the discussion on insurance
industry and related issues we have to start with the basics of insurance
So first we understand what is insurance How the word lsquoinsurancersquo is different
from the word
lsquoAssurancersquo etc
LIFE INSURANCE
As is evident from its very name it deals with insurance of human life ldquoLife
insurance corporation of Indiardquo- a public sector undertaking has the monopoly in
this sector since its nationalization In our wordily life whenever there is
uncertainty there is an involvement of risk The instinct for security against such
risk is one of the basic motivating forces determining human attitudes As a squeal
to this quest for Security the concept of insurance must have been born The urge
to provide insurance or protection against the loss of life amp property must have
prompted people to make some sort of sacrifice willingly in order to achieve
security through ldquoCOLLECTIVE CO-OPERATIONrdquo in this sense story of
insurance is probably as old as the story of mankind All life insurance companies
in India have to comply with the strict regulations laid out by Insurance Regulatory
and Development Authority of India (IRDA) Therefore there is no risk in going in
10
for private insurance players In terms of being rated for financial strength like
international players only ICICI Prudential is rated by Fitch India at National
Insurer Financial Strength Rating of AAA (Indi) with stable outlook indicating the
highest claims paying ability
50
10
4
5
5
6
42
13
1 8
MARKET SHARE
LIC-50ICICI PRODENTIAL-10BAJAJALLIANZ-4SBI LIFE-5RELIANCE-5HDFC STANDARD LIFE-6BIRLA SUN LIFE-4TATA-2MET-1MAX NEWYORK-3KOTAK MAGINDRA-2OTHER-8
Figure 2 The market share of the Indian Life Insurance industry (figures are
approximate) (Source As per a report published in 2010 by Ms Pinky Walia-
Financial Advisor
11DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances
From 1826 the term assurance came to be used only for the risks covered by life
insurance and the term insurance was exclusively used to denote the risks covered
by marine fire etc The word assurance indicated certainty In life insurance there
is an assurance from the insurance company to make payment under the policy
11
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
The study has been conducted by making use of both primary and
secondary data
Primary Data
The primary data has been collected by interaction with the officials of
RELIANCE LIFE INSURANCE palasa ndashkasibugga
Secondary Data
Secondary data has been collected from RELIANCE LIFE INSURANCE
broachers from internet web site wwwRLScom and news papers and magazines
LIMITATIONS OF THE STUDY
7
In spite of honest and sincere efforts there are some limitations as stated
below
There is no depth information given in the investment options by the branch
The company has not disclosed the total statistical information with regard
to the fund performance
INDUSTRY PROFILE
8
11 MEANING OF INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of loss to
life and property Insurance is a collective bearing of risk Insurance is a financial
device to spread the risks and losses of few people among a large number of
people as people prefer small fixed liability instead of big uncertain and changing
liability Insurance can be defined as a ldquolegal contract between two parties where
by one party called insurer undertakes to pay a fixed amount of money on the
happening of a particular event which may be certain or uncertainrdquo The other
party called insured pays in exchange a fixed sum known as premium Insurance is
desired to safeguard oneself and onersquos family against possible losses on account of
risks and perils It provides financial compensation for the losses suffered due to
the happening of any unforeseen events
12 IMPORTANCE OF INSURANCE
Insurance constitutes one of the major segments of the financial market Insurance
services play predominant role in the process of financial intermediary Today
insurance industry is one of the most growing sectors in India There is lot of
potential in the Indian Insurance Industry There are many issues which require
study The scope of the study of insurance industry of India would be very great as
there are ongoing developments in the industry after the opening of the sector The
major issue right now is the hike in FDI (Foreign Direct Investment) limit from
26 to 49 in the insurance sector Government may in near future allow 49
FDI in Insurance This would lead to more capital inflow by foreign partners
Another major issue is the effects on LIC after the entry of private players in the
9
market Though market share of LIC has been affected it has improved There are
number of other hot topics like penetration of Health Insurance Rural marketing of
insurance new distribution channels new product ranges insurance brokersrsquo
regulation incentive scheme of development officers of LIC etc So it offers lot of
scope for studying the insurance industry Right now the insurance industry has
great opportunities in a country like India or China which huge population Also
the penetration of insurance in India is very low in both life and non-life segment
so there is lot potential tube tapped Before starting the discussion on insurance
industry and related issues we have to start with the basics of insurance
So first we understand what is insurance How the word lsquoinsurancersquo is different
from the word
lsquoAssurancersquo etc
LIFE INSURANCE
As is evident from its very name it deals with insurance of human life ldquoLife
insurance corporation of Indiardquo- a public sector undertaking has the monopoly in
this sector since its nationalization In our wordily life whenever there is
uncertainty there is an involvement of risk The instinct for security against such
risk is one of the basic motivating forces determining human attitudes As a squeal
to this quest for Security the concept of insurance must have been born The urge
to provide insurance or protection against the loss of life amp property must have
prompted people to make some sort of sacrifice willingly in order to achieve
security through ldquoCOLLECTIVE CO-OPERATIONrdquo in this sense story of
insurance is probably as old as the story of mankind All life insurance companies
in India have to comply with the strict regulations laid out by Insurance Regulatory
and Development Authority of India (IRDA) Therefore there is no risk in going in
10
for private insurance players In terms of being rated for financial strength like
international players only ICICI Prudential is rated by Fitch India at National
Insurer Financial Strength Rating of AAA (Indi) with stable outlook indicating the
highest claims paying ability
50
10
4
5
5
6
42
13
1 8
MARKET SHARE
LIC-50ICICI PRODENTIAL-10BAJAJALLIANZ-4SBI LIFE-5RELIANCE-5HDFC STANDARD LIFE-6BIRLA SUN LIFE-4TATA-2MET-1MAX NEWYORK-3KOTAK MAGINDRA-2OTHER-8
Figure 2 The market share of the Indian Life Insurance industry (figures are
approximate) (Source As per a report published in 2010 by Ms Pinky Walia-
Financial Advisor
11DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances
From 1826 the term assurance came to be used only for the risks covered by life
insurance and the term insurance was exclusively used to denote the risks covered
by marine fire etc The word assurance indicated certainty In life insurance there
is an assurance from the insurance company to make payment under the policy
11
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
In spite of honest and sincere efforts there are some limitations as stated
below
There is no depth information given in the investment options by the branch
The company has not disclosed the total statistical information with regard
to the fund performance
INDUSTRY PROFILE
8
11 MEANING OF INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of loss to
life and property Insurance is a collective bearing of risk Insurance is a financial
device to spread the risks and losses of few people among a large number of
people as people prefer small fixed liability instead of big uncertain and changing
liability Insurance can be defined as a ldquolegal contract between two parties where
by one party called insurer undertakes to pay a fixed amount of money on the
happening of a particular event which may be certain or uncertainrdquo The other
party called insured pays in exchange a fixed sum known as premium Insurance is
desired to safeguard oneself and onersquos family against possible losses on account of
risks and perils It provides financial compensation for the losses suffered due to
the happening of any unforeseen events
12 IMPORTANCE OF INSURANCE
Insurance constitutes one of the major segments of the financial market Insurance
services play predominant role in the process of financial intermediary Today
insurance industry is one of the most growing sectors in India There is lot of
potential in the Indian Insurance Industry There are many issues which require
study The scope of the study of insurance industry of India would be very great as
there are ongoing developments in the industry after the opening of the sector The
major issue right now is the hike in FDI (Foreign Direct Investment) limit from
26 to 49 in the insurance sector Government may in near future allow 49
FDI in Insurance This would lead to more capital inflow by foreign partners
Another major issue is the effects on LIC after the entry of private players in the
9
market Though market share of LIC has been affected it has improved There are
number of other hot topics like penetration of Health Insurance Rural marketing of
insurance new distribution channels new product ranges insurance brokersrsquo
regulation incentive scheme of development officers of LIC etc So it offers lot of
scope for studying the insurance industry Right now the insurance industry has
great opportunities in a country like India or China which huge population Also
the penetration of insurance in India is very low in both life and non-life segment
so there is lot potential tube tapped Before starting the discussion on insurance
industry and related issues we have to start with the basics of insurance
So first we understand what is insurance How the word lsquoinsurancersquo is different
from the word
lsquoAssurancersquo etc
LIFE INSURANCE
As is evident from its very name it deals with insurance of human life ldquoLife
insurance corporation of Indiardquo- a public sector undertaking has the monopoly in
this sector since its nationalization In our wordily life whenever there is
uncertainty there is an involvement of risk The instinct for security against such
risk is one of the basic motivating forces determining human attitudes As a squeal
to this quest for Security the concept of insurance must have been born The urge
to provide insurance or protection against the loss of life amp property must have
prompted people to make some sort of sacrifice willingly in order to achieve
security through ldquoCOLLECTIVE CO-OPERATIONrdquo in this sense story of
insurance is probably as old as the story of mankind All life insurance companies
in India have to comply with the strict regulations laid out by Insurance Regulatory
and Development Authority of India (IRDA) Therefore there is no risk in going in
10
for private insurance players In terms of being rated for financial strength like
international players only ICICI Prudential is rated by Fitch India at National
Insurer Financial Strength Rating of AAA (Indi) with stable outlook indicating the
highest claims paying ability
50
10
4
5
5
6
42
13
1 8
MARKET SHARE
LIC-50ICICI PRODENTIAL-10BAJAJALLIANZ-4SBI LIFE-5RELIANCE-5HDFC STANDARD LIFE-6BIRLA SUN LIFE-4TATA-2MET-1MAX NEWYORK-3KOTAK MAGINDRA-2OTHER-8
Figure 2 The market share of the Indian Life Insurance industry (figures are
approximate) (Source As per a report published in 2010 by Ms Pinky Walia-
Financial Advisor
11DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances
From 1826 the term assurance came to be used only for the risks covered by life
insurance and the term insurance was exclusively used to denote the risks covered
by marine fire etc The word assurance indicated certainty In life insurance there
is an assurance from the insurance company to make payment under the policy
11
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
11 MEANING OF INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of loss to
life and property Insurance is a collective bearing of risk Insurance is a financial
device to spread the risks and losses of few people among a large number of
people as people prefer small fixed liability instead of big uncertain and changing
liability Insurance can be defined as a ldquolegal contract between two parties where
by one party called insurer undertakes to pay a fixed amount of money on the
happening of a particular event which may be certain or uncertainrdquo The other
party called insured pays in exchange a fixed sum known as premium Insurance is
desired to safeguard oneself and onersquos family against possible losses on account of
risks and perils It provides financial compensation for the losses suffered due to
the happening of any unforeseen events
12 IMPORTANCE OF INSURANCE
Insurance constitutes one of the major segments of the financial market Insurance
services play predominant role in the process of financial intermediary Today
insurance industry is one of the most growing sectors in India There is lot of
potential in the Indian Insurance Industry There are many issues which require
study The scope of the study of insurance industry of India would be very great as
there are ongoing developments in the industry after the opening of the sector The
major issue right now is the hike in FDI (Foreign Direct Investment) limit from
26 to 49 in the insurance sector Government may in near future allow 49
FDI in Insurance This would lead to more capital inflow by foreign partners
Another major issue is the effects on LIC after the entry of private players in the
9
market Though market share of LIC has been affected it has improved There are
number of other hot topics like penetration of Health Insurance Rural marketing of
insurance new distribution channels new product ranges insurance brokersrsquo
regulation incentive scheme of development officers of LIC etc So it offers lot of
scope for studying the insurance industry Right now the insurance industry has
great opportunities in a country like India or China which huge population Also
the penetration of insurance in India is very low in both life and non-life segment
so there is lot potential tube tapped Before starting the discussion on insurance
industry and related issues we have to start with the basics of insurance
So first we understand what is insurance How the word lsquoinsurancersquo is different
from the word
lsquoAssurancersquo etc
LIFE INSURANCE
As is evident from its very name it deals with insurance of human life ldquoLife
insurance corporation of Indiardquo- a public sector undertaking has the monopoly in
this sector since its nationalization In our wordily life whenever there is
uncertainty there is an involvement of risk The instinct for security against such
risk is one of the basic motivating forces determining human attitudes As a squeal
to this quest for Security the concept of insurance must have been born The urge
to provide insurance or protection against the loss of life amp property must have
prompted people to make some sort of sacrifice willingly in order to achieve
security through ldquoCOLLECTIVE CO-OPERATIONrdquo in this sense story of
insurance is probably as old as the story of mankind All life insurance companies
in India have to comply with the strict regulations laid out by Insurance Regulatory
and Development Authority of India (IRDA) Therefore there is no risk in going in
10
for private insurance players In terms of being rated for financial strength like
international players only ICICI Prudential is rated by Fitch India at National
Insurer Financial Strength Rating of AAA (Indi) with stable outlook indicating the
highest claims paying ability
50
10
4
5
5
6
42
13
1 8
MARKET SHARE
LIC-50ICICI PRODENTIAL-10BAJAJALLIANZ-4SBI LIFE-5RELIANCE-5HDFC STANDARD LIFE-6BIRLA SUN LIFE-4TATA-2MET-1MAX NEWYORK-3KOTAK MAGINDRA-2OTHER-8
Figure 2 The market share of the Indian Life Insurance industry (figures are
approximate) (Source As per a report published in 2010 by Ms Pinky Walia-
Financial Advisor
11DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances
From 1826 the term assurance came to be used only for the risks covered by life
insurance and the term insurance was exclusively used to denote the risks covered
by marine fire etc The word assurance indicated certainty In life insurance there
is an assurance from the insurance company to make payment under the policy
11
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
market Though market share of LIC has been affected it has improved There are
number of other hot topics like penetration of Health Insurance Rural marketing of
insurance new distribution channels new product ranges insurance brokersrsquo
regulation incentive scheme of development officers of LIC etc So it offers lot of
scope for studying the insurance industry Right now the insurance industry has
great opportunities in a country like India or China which huge population Also
the penetration of insurance in India is very low in both life and non-life segment
so there is lot potential tube tapped Before starting the discussion on insurance
industry and related issues we have to start with the basics of insurance
So first we understand what is insurance How the word lsquoinsurancersquo is different
from the word
lsquoAssurancersquo etc
LIFE INSURANCE
As is evident from its very name it deals with insurance of human life ldquoLife
insurance corporation of Indiardquo- a public sector undertaking has the monopoly in
this sector since its nationalization In our wordily life whenever there is
uncertainty there is an involvement of risk The instinct for security against such
risk is one of the basic motivating forces determining human attitudes As a squeal
to this quest for Security the concept of insurance must have been born The urge
to provide insurance or protection against the loss of life amp property must have
prompted people to make some sort of sacrifice willingly in order to achieve
security through ldquoCOLLECTIVE CO-OPERATIONrdquo in this sense story of
insurance is probably as old as the story of mankind All life insurance companies
in India have to comply with the strict regulations laid out by Insurance Regulatory
and Development Authority of India (IRDA) Therefore there is no risk in going in
10
for private insurance players In terms of being rated for financial strength like
international players only ICICI Prudential is rated by Fitch India at National
Insurer Financial Strength Rating of AAA (Indi) with stable outlook indicating the
highest claims paying ability
50
10
4
5
5
6
42
13
1 8
MARKET SHARE
LIC-50ICICI PRODENTIAL-10BAJAJALLIANZ-4SBI LIFE-5RELIANCE-5HDFC STANDARD LIFE-6BIRLA SUN LIFE-4TATA-2MET-1MAX NEWYORK-3KOTAK MAGINDRA-2OTHER-8
Figure 2 The market share of the Indian Life Insurance industry (figures are
approximate) (Source As per a report published in 2010 by Ms Pinky Walia-
Financial Advisor
11DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances
From 1826 the term assurance came to be used only for the risks covered by life
insurance and the term insurance was exclusively used to denote the risks covered
by marine fire etc The word assurance indicated certainty In life insurance there
is an assurance from the insurance company to make payment under the policy
11
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
for private insurance players In terms of being rated for financial strength like
international players only ICICI Prudential is rated by Fitch India at National
Insurer Financial Strength Rating of AAA (Indi) with stable outlook indicating the
highest claims paying ability
50
10
4
5
5
6
42
13
1 8
MARKET SHARE
LIC-50ICICI PRODENTIAL-10BAJAJALLIANZ-4SBI LIFE-5RELIANCE-5HDFC STANDARD LIFE-6BIRLA SUN LIFE-4TATA-2MET-1MAX NEWYORK-3KOTAK MAGINDRA-2OTHER-8
Figure 2 The market share of the Indian Life Insurance industry (figures are
approximate) (Source As per a report published in 2010 by Ms Pinky Walia-
Financial Advisor
11DIFFERENCE BEETWEN INSURANCE AND ASSURANCE
Assurance is older in history and it was used to describe all types of insurances
From 1826 the term assurance came to be used only for the risks covered by life
insurance and the term insurance was exclusively used to denote the risks covered
by marine fire etc The word assurance indicated certainty In life insurance there
is an assurance from the insurance company to make payment under the policy
11
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
either on the maturity or at earlier death On the other hand the word insurance was
used to denote indemnity type of insurances where the insurance company was
liable to pay only in case of the loss damage the property The insured event was
bound to happen sooner or later under assurance but the event insured against may
or may not happen under insurance The principle of ldquoindemnityrdquo applies to
ldquoinsurance contractsrdquo(non-life) only The scope of the word insurance is wider
12PRINCIPLES OF INSURANCE
An insurance contract is based on some basic principles of insurance
(1) Principle of ldquoUberrima Fidesrdquo or Principle of utmost good faith
It means ldquomaximum truthrdquo Both the parties should disclose all material
information regarding the subject matter of insurance
(2) Principle of indemnity
This means that if the insured suffers a loss against which the policy has been
made he shall be fully indemnified only to the extent of loss In other words the
insured is not entitled to make a profit on his loss
(3) Principle of subrogation
This means the insurer has the right to stand in the place of the insured after
settlement of claims in so far as the insuredrsquos right of recovery from an alternative
source is involved The insurer before the settlement of the claim may exercise the
right In other words the insurer is entitled to
recover from a negligent third party any loss payments made to the insured The
purposes of subrogation are to hold the negligent person responsible for the loss
12
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
and prevent the insured from collecting twice for the same loss The concept of
lsquoThird Party Claimsrsquo is based on the same principle
(4) Principle of cause proximate
The cause of loss must be direct and an insured one in order to claim of
compensation
(5) Principle of insurable interest
The assured must have insurance interest in the life or property insured Insurable
interest is that interest which considerably alters the position of the assured in the
event of loss taking place and if the event does not take placed he remains in the
same old position
15 HISTORY OF INSURANCE
The concept of insurance is believed to have emerged almost 4500 years ago in the
ancient land of Babylonia where traders used to bear risk of the caravan by giving
loans which were later repaid with interest when the goods arrived safely The
concept of insurance as we know today took shape in 1688 at a place called
Lloydrsquos Coffee House in London where risk bearers used to meet to transact
business This coffee house became so popular that Lloydrsquos became the one of the
first modern insurance companies by the end of the eighteenth century Marine
insurance companies came into existence by the end of the eighteenth century
These companies were empowered to write fire and life insurance as well as
marine The Great Fire of London in 1966 caused huge loss of property and life
With a view to providing fire insurance facilities Dr Nicholas Barbon set up in
1967 the first fire insurance company known as the Fire office
13
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
The early history of insurance in India can be traced back to the Vedas The
Sanskrit term lsquoYogakshemarsquo (meaning well being) the name of Life Insurance
Corporation of Indiarsquos corporate headquarters is found in the Rig Veda The
Aryans practiced some form of lsquocommunity insurancersquo around 1000 BC Life
insurance in its modern form came to India from England in 1818 The Oriental
Life Insurance Company was the first insurance company to be set up in India to
help the widows of European community The insurance companies which came
into existence between 1818 and 1869 treated Indian lives as subnormal and
charged an extra premium of 15 to 20 per cent The first Indian insurance
company the Bombay Mutual Life Assurance Society came into existence in 1870
to cover Indian lives at normal rates The Insurance Act 1938 the first
comprehensive legislation governing both life and non-life branches of insurance
were enacted to provide strict state control over insurance business This amended
insurance Act looked into investments expenditure and management of these
companies By the mid- 1950s there were 154 Indian insurers 16 foreign insurers
and 75 provident societies carrying on life insurance business in India Insurance
business flourished and so did scams irregularities and dubious investment
practices by scores of companies As a result the government decided to
nationalize the life assurance business in India The Life Insurance Corporation of
India (LIC) was set up in 1956 The nationalization of life insurance was followed
by general insurance in 1972
16 TIME LINE IN INSURANCE HISTORY (MAJOR LANDMARKS)
14
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
1048766 1818 British introduced the life insurance to India with the establishment of the
Oriental Life Insurance Company in Calcutta
1048766 1850 Non life insurance started with Triton Insurance Company
1048766 1870 Bombay Mutual Life Assurance Society is the first India owned life
insurer
1048766 1912 The Indian Life Assurance Company Act enacted to regulate the life
insurance business
1048766 1938 The Insurance Act was enacted
1048766 1956 Nationalization took place Government took over 245 Indian and foreign
insurers and provident societies
1048766 1972 Non-life business nationalized General Insurance Corporation (GIC)
came into being
1048766 1993 Malhotra committee was constituted under the chairmanship of former
RBI chief R N Malhotra to draw a blue print for insurance sector reforms
1048766 1994 Malhotra committee recommended reentry of private players
1048766 1997 IRDA (Insurance Regulatory and Development Authority) was set up as a
regulator of the insurance market in India
15
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
1048766 2000 IRDA started giving license to private insurers ICICI Prudential HDFC
were first private players to sell insurance Policies
1048766 2002 Bank allowed to sell insurance plans as TPAs enter the scene insurers
start setting non life claims in the cashless mode
17 MEANING OF LIFE INSURANCE
There are three parties in a life insurance transaction the insurer the insured and
the owner of the policy (policyholder) although the owner and the insured are
often the same person
Another important person involved in a life insurance policy is the beneficiary The
beneficiary is the person or persons who will receive the policy proceeds upon the
death of the insured
Life insurance may be divided into two basic classes ndash term and permanent
bull Term life insurance provides for life insurance coverage for a specified term of
years for a specified premium The policy does not accumulate cash value
bull Permanent life insurance is life insurance that remains in force until the policy
matures unless the owner fails to pay the premium when due
bull Whole life insurance provides for a level premium and a cash value table
included in the policy guaranteed by the company The primary advantages of
whole life are guaranteed death benefits guaranteed cash values fixed and known
annual premiums and mortality and expense charges will not reduce the cash value
shown in the policy
16
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
bull Universal life insurance (UL) is a relatively new insurance product intended to
provide permanent insurance coverage with greater flexibility in premium payment
and the potential for a higher internal rate of return A universal life policy includes
a cash account Premiums increase the cash account If you want insurance
protection only and not a savings and investment product buy a term life
insurance policy If you want to buy a whole life universal life or other cash value
policy plan to hold it for at least 15 years Canceling these policies after only a
few years can more than double your life insurance costs Check the National
Association of Insurance Commissioners website (wwwnaicorgcis) or your local
library for information on the financial soundness of insurance companies
18 HISTORY OF LIFE INSURANCE
Risk protection has been a primary goal of humans and institutions throughout
history Protecting against risk is what insurance is all about Over 5000 years ago
in China insurance was seen as a preventative measure against piracy on the sea
Piracy in fact was so prevalent that as a way of spreading the risk a number of
ships would carry a portion of another ships cargo so that if one ship was captured
the entire shipment would not be lost In another part of the world nearly 4500
years ago in the ancient land of Babylonia traders used to bear risk of the caravan
trade by giving loans that had to be later repaid with interest when the goods
arrived safely In 2100 BC the Code of Hammurabi granted legal status to the
practice It formalized concepts of ldquobottomryrdquo referring to vessel bottoms and
ldquorespondentiardquo referring to cargo These provided the underpinning for marine
insurance contracts Such contracts contained three elements a loan on the vessel
cargo or freight an interest rate and a surcharge to cover the possibility of loss In
effect ship owners were the insured and lenders were the underwriters
17
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Life insurance came about a little later in ancient Rome where burial clubs were
formed to cover the funeral expenses of its members as well as help survivors
monetarily With Romes fall around 450 AD most of the concepts of insurance
were abandoned but aspects of it did continue through the Middle Ages
particularly with merchant and artisan guilds These provided forms of member
insurance covering risks like fire flood theft disability death and even
imprisonment During the feudal period early forms of insurance ebbed with the
decline of travel and long-distance trade But during the 14th to 16th centuries
transportation commerce and insurance would again reemerge Insurance in India
can be traced back to the Vedas For instance yogakshema the name of Life
Insurance Corporation of Indias corporate headquarters is derived from the Rig
Veda The term suggests that a form of community insurance was prevalent
around 1000 BC and practiced by the Aryans And similar to ancient Rome burial
societies were formed in the Buddhist period to help families build houses and to
protect widows and children
1048766 Modern Insurance
Illegal almost everywhere else in Europe life insurance in England was vigorously
promoted in the three decades following the Glorious Revolution of 1688 The type
of insurance we see today owes its roots to 17th century England Lloyds of
London or as they were known then Lloyds Coffee House was the location
where merchants ship owners and underwriters met to discuss and transact
business deals
18
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
While serving as a means of risk-avoidance life insurance also appealed strongly
to the gambling instincts of Englands burgeoning middle class Gambling was so
rampant in fact that when newspapers published names of prominent people who
were seriously ill bets were placed at Lloydrsquos on their anticipated dates of death
Reacting against such practices 79 merchant underwriters broke away in 1769 and
two years later formed a ldquoNew Lloydrsquos Coffee Houserdquo that became known as the
ldquoreal Lloydrsquosrdquo Making wagers on peoples deaths ceased in 1774 when parliament
forbade the practice
1048766 Final Thoughts
Even though the American insurance industry was greatly influenced by Britain
the US market developed somewhat differently from that of the United Kingdom
Contributing to that was Americas size land diversity and the overwhelming
desire to be independent As America moved from a colonial outpost to an
independent force from a farming country to an industrial nation the insurance
business developed from a small number of companies to a large industry
Insurance became more sophisticated offering new types of coverage and
diversified services for an increasingly complex country
19 KEY FEATURES OF LIFE INSURANCE
1) Nomination -
19
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
When one makes a nomination as the policyholder you continue to be the owner
of the policy and the nominee does not have any right under the policy so long as
you are alive The nominee has only the right to receive the policy monies in case
of your death within the term of the policy
2) Assignment -
If your intention is that your policy monies should go only to a particular person
you need to assign the policy in favor of that person
3) Death Benefit -
The primary feature of a life insurance policy is the death benefit it provides
Permanent policies provide a death benefit that is guaranteed for the life of the
insured provided the premiums have been paid and the policy has not been
surrendered
4) Cash Value -
The cash value of a permanent life insurance policy is accumulated throughout the
life of the policy It equals the amount a policy owner would receive after any
applicable surrender charges if the policy were surrendered before the insureds
death
5) Dividends -
Many life insurance companies issue life insurance policies that entitle the policy
owner to share in the companys divisible surplus
6) Paid-Up Additions -
20
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Dividends paid to a policy owner of a participating policy can be used in numerous
ways one of which is toward the purchase of additional coverage called paid-up
additions
7) Policy Loans -
Some life insurance policies allow a policy owner to apply for a loan against the
value of their policy Either a fixed or variable rate of interest is charged This
feature allows the policy owner an easily accessible loan in times of need or
opportunity
8) Conversion from Term to Permanent -
When in need of temporary protection individuals often purchase term life
insurance If one owns a term policy sometimes a provision is available that will
allow her to convert her policy to a permanent one without providing additional
proof of insurability
9) Disability Waiver of Premium
Waiver of Premium is an option or benefit that can be attached to a life insurance
policy at an additional cost It guarantees that coverage will stay in force and
continue to grow
110 BENEFITS OF LIFE INSURANCE
1) Risk cover -
Life Insurance contracts allow an individual to have a risk cover against any
unfortunate event of the future
2) Tax Deduction -
21
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Under section 80C of the Income Tax Act of 1961 one can get tax deduction on
premiums up to one lakh rupees Life Insurance policies thus decrease the total
taxable income of an individual
3) Loans -
An individual can easily access loans from different financial institutions by
pledging his insurance policies
4) Retirement Planning -
What had provided protection against the financial consequences of premature
death may now be used to help them enjoy their retirement years Moreover the
cash value can be used as an additional income in the old age
5) Educational Needs -
Similar to retirement planning the cash values that flow from ones life insurance
schemes can be utilized for educational needs of the insurer or his children
111 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE
ECONOMY
The Life Insurance Industry has an enviable track record among public sector
units It has a Consistent profit and dividend paying record accompanied by a
steady growth in its financial resources Through investments in the Government
sector and socially- oriented sectors the
Industry has contributed immensely to the nations development
The industry is recognized as one of the largest financial Institutions in the
country The ventures initiated by the industry in the areas of Mutual Fund
Housing Finance has done exceedingly well in recent years To protect the
22
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
countrys foreign exchange reserves the reinsurance arrangement are so organized
that maximum retention is made possible within the country while at the same time
protecting interests of the policy holders
EVALUATION OF IRDA
The Malhotra committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to ant as
independent companies with economic motives For this purpose it had propose
setting up an independent regulatory body the insurance regulatory and
development authority reforms in the insurance sector were initiated with the
passage of the IRDA bill in parliament in December 1999 The IRDA since its
incorporation as a statutory body in April 2000 has fastidiously stuck to its
schedule of framing regulations and registering the private sector insurances
companies The other decision taken simultaneously to provide the supporting
systems to the insurances sector and in particular the life insurance company was
the launch of the IRDArsquos online service for issue and renewal of licenses to agents
The approval of institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce of insurance agents
in place to sell their products which are expected to ne introduced by early next
year Since being set op as an independent statutory body the IRDA has put in a
framework if globally compatible regulations In the private sector 12 life
insurance and 6 general insurance companies have been registered
23
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
IRDA
Itrsquos statutory autonomous board create to perform the role of an effective
regulator for the the purpose of the act
IRDA is constituted with one chairperson whole time members and 4 part-
time members all with tenure of years
There will be an advisory insurance sector in India It is vested with the
power to make regulations consistent with the act carry out committee
consisting of 25 members to advise IRDA in its day-to-day activities
representing commerce agriculture consumers employeersquos etc
Objectives of IRDA
TO provide for the establishment of an authority ro protect the interests of holders
of insurance policies to regulate promote and ensure orderly growth of the
insurances industry
Important changes brought through IRDA act
Insurance business is opened up the private sector thus ending the monopoly
of LIC
Participation of foreign companies in collaboration with Indian instance
companies is
allowed subject to the condition that the foreign companyrsquos share capital
shall not exceed 26 of the paid-up capital of the Indian insured
24
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Controllers of insurance ceases of exist and all functions are vested with
IRDA
Appointment of chief agents and special agents is revived
The concept of insurance brokers is introduced
Duties Powers and Functions of IRDA
Issue to the applicant a certificate of registration renew modify withdraw
suspend or cancel such registration
protection of the interests of the policy holders in matters concerning
assigning of policy nomination by policy holders insurable interest
settlement of insurance claim surrender value of policy and other terms
and conditions of contracts of insurance
Specifying requisite qualifications code of conduct and practical training
for intermediary or insurance intermediaries and agents
Specifying the code of conduct for surveyors and loss assessors
Promoting efficiency in the conduct of insurance business
Promoting and regulating professional organizations connected with the
insurance and re-insurance business
Levying fees and other charges for carrying out the purposes of this Act
25
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Calling for information from undertaking inspection of conducting
enquiries and investigations including audit of the insurers intermediaries
insurance intermediaries and other organizations connected with the
insurance business
control and regulation of the rates advantages terms and conditions that
may be offered by insurers in respect of general insurance business not so
controlled and regulated by the Tariff Advisory Committee under section
64U of the Insurance Act 1938 (4 of 1938)
Specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries
Regulating investment of funds by insurance companies
Regulating maintenance of margin of solvency
Adjudication of disputes between insurers and intermediaries or insurance
intermediaries
Supervising the functioning of the Tariff Advisory Committee
Specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organisations referred
to in clause
26
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
COMPANY PROFILE
21 ABOUT RELIANCE LIFE INSURANCE
Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd of the
Reliance - Anil Dhirubhai Ambani Group Reliance Capital is one of Indiarsquos
leading private sector financial services companies and ranks among the top 3
private sector financial services and banking companies in terms of net worth
Reliance Capital has interests in asset management and mutual
funds stock broking life and general insurance proprietary investments private
equity and other activities in financial services Reliance Capital Limited (RCL) is
a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of
India under section 45-IA of
the Reserve Bank of India Act 1934
Reliance Capital sees immense potential in the rapidly growing financial services
sector in India and aims to become a dominant player in this industry and offer
fully integrated financial services Reliance Life Insurance is another steps forward
for Reliance Capital Limited to offer need based Life Insurance solutions to
individuals and Corporate
27
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
22 HISTORY
Reliance Capital Limited announced the launch of its life insurance business on
February 1 2006 This was after obtaining the required regulatory approvals from
the Registrar Of Companies and the Insurance Regulatory and Development
Authority It was in August 2005 that the ball was set rolling when Reliance
Capital Limited the financial arm of Reliance ndash Anil Dhirubhai Ambani Group
(ADAG) ndash announced the requisition of 100 shareholding in AMP Sanmar Life
Insurance Company Limited and the formal transfer of shares took place in
October 2005 The company will issue all policy contracts under the Reliance Life
Insurance Company limited name All the existing policy contracts also stand
transferred to the Reliance Life Insurance entity with all
the original contractual terms and commitments intact
BOARD OF DIRECTORS
Gautam Doshi Non Executive Director
Satya Pal Talwar Independent Director
Rajendra Chitale Independent Director
Soumen Ghosh Non Executive Directo
Malay Ghosh Executive Director amp President
28
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Top Management Team-Reliance Life Insurance
Malay Ghosh ndash Executive Director amp President
S V Sunder Krishnan Chief Risk Officer
Sunil Agrawal Chief Financial Office Saroj K Panigrahi
Head ndash Legal Compliance amp Company Secretary
Pournima Gupte Appointed Actuary
R Rangarajan Chief Investment Officer
Manoranjan Sahoo Head- Agenc
Maneesha Thakur Chief Human Resources Officer
C Mohan Chief Technology Officers
23 JOURNEY SO FARhellip
1048766 2005 August Anil Dhirubhai Ambani Group (ADAG) announces the
acquisition of 100 percent shareholding in AMP Sanmar Life Insurance
1048766 2006 January 17 Mr Nandgopal participates in a one-day conference on
lsquoOptimising growth opportunities through Distribution Matrix lsquoEmerging
Bancassurancersquo organized by the Asia Insurance Post at the Taj President
Mumbai
February 1 Rliance Life Insurance officially launched
29
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
February 16 17 18 Strategy meet at the Reliance Management Institute
Amongst those who participate are the CEO COO Functional Heads Regional
Managers and Regional Sales Managers
February 26 A Puja held at the Churchgate office situated in Express Building
4th Floor 14 lsquoErsquo Road Mumbai
March 1 Churchgate office inaugurated by Mr Amitabh Jhunjhunwala Mr
Amitabh Chaturvedi and Mr Nandgopal
March 6 Shifting to the new premises at Churchgate commences
March 7 The new office at Chennai at the Trapezium First Floor 39 Nelson
Manickam Road inaugurated by their CEO Mr Nandgopal Mr KV Srinivasan
and Mr Sureshbabu also graced the occasion
24 ROLE OF IT AT RELIANCE LIFEINSURANCE
1) World Class Data Centre -
They plan to establish a Primary Data Centre at Navi Mumbai (Dhirubhai Ambani
Knowledge City) which will cater to their company needs across India with fail-
over capability to their Chennai Data Centre within the same business day in
occurance if an incident or Disaster happens
30
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
2) Inter Office Connectivity -
All their Branch Area and Regional offices will be interconnected to their Data
Centre with a 24x7 access to Core Applications like Lotus Mail Life-Asia and
Internet Applications This
will enable their associates to work faster and better with high-speed Internet
connectivity and also ensure faster Turn Around Time for their customers
3) Customer Care Centre -
They will host a centralized Customer Care Centre at Dhirubhai Ambani
Knowledge City at Navi Mumbai which cater services to internal and external
queries and complications A customer Relationship Management Tool (CRM) and
Lead Management System
LMS) are in progress
4) Web Portal -
This portal will be an interface between both internal employees and their external
users Some of the functions included in their portal are Policy Tracking Systems
Corporate News Quality Checking System Under Writing Medical System and
Agent Management System etc
31
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
5) R World -
Reliance Mobile R-World will provide online information about their Company
Products and Policy Services to their existing customers AgentsAdvisors and
Lead Generators
6) SMS Alerts -
SMS Alerts will be provided to their Sales Managers about the latest happenings
like Contests and Campaigns Employee Alerts will include Company News and
WelcomeBirthday Anniversary message etc Customer Alerts will include
WelcomeBirthdayAnniversary message Policy Dispatch Details Policy
Servicing SMS like Premium Receipt and Renewal Premium reminders etc
7) Life and Group Asia -
Single Life and Group Life details will be captured and managed by Life and
Group Asia A common middleware between these applications will enable Group
Life Customers to view their individual Single Life Insurance Plan details taken
with Reliance Life Insurance and vice versa
8) Advisor Lounge -
It is a dedicated area for Reliance Life Insurance AgentsAdvisors in all the
branches across India This Lounge will be equipped with desktops and printers
with Internet connectivity where
32
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
their Advisors can bring in the prospects and can have discussions across the table
and they can create and print quotes The AgentsAdvisors can buse this area to
service their existing customers
9) Document Management System -
DMS will enable both policy issuance and contract servicing through an automated
workflow which yields a faster Turn around Time to both internal and external
users This application will enable them to have a paperless office and thus
mitigate the risk of losing vital recordspapers
10) Wireless Data Access -
This will enable identified Top Sales Managers and Top Advisors to access real
time data for both LMS and CRM on the fly through Handheld PDA device
11) SAP ndash ERP Modules -
SAP (Finance and HR Modules) will automate the Expense Travel and Leave
Management Systems
25 MISSION
The mission of Reliance Life Insurance Company Limited is to be the best in
every sphere- business results customer care and employee focus The aim
of the company is to Think Bigger and Think Better
33
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
26 CORE VALUES
Reliance Life Insurance Company Limited has some core values which are
listed as follows
1) Result Oriented
2) Performance Driven
3) Customer Focused
4) Learning and Development Oriented
5) Employee Centric
6) Informal and Fun
27 FUTURE PLANS
1048766 Forty-four new branches to be opened across the country in the
coming months and a pan India presence with 162 branches in the
coming year
1048766 A state-of-the-art customer care centre will provide continuous
responsive services to the caller and promptly address queries collate
feedback and suggestions from the caller who may be both
prospective and existing clientele and from channel partners in Chennai and
Mumbai
34
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
GLOSSARY
Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries
but not illness In he event of death payment is made to the insuredrsquos beneficiary
if bodily injury occurs the insured receives a sum specified by the contract
ANNUITY
A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium of a series of
premiums called the purchase price
ASSIGHMENT
A life insurance policy is regarded under the law under the law as a form of
personal property Its owner can retain the policy transfer it to someone else
mortgage or charge it or use it as the bases of a trust Assignments are actions
taken which affect ownership of the policy There are severs types of assignments
A notice must follow a legal assignment to the insurance company To protect the
person who is assigned a life insurance policy a notice of assignment must be
given to the insurance company Once notice is given the person to whom the
policy has been assigned to has precedence over all other interests except for four
cases
35
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Trustees in bankruptcy
Voluntary assignments between assignor and assignee
Evidence of willful business on the part of the assignee
Mortgage for unlimited amounts
BENEFICIARY
An individual designated in a well to receive an inheritance or the individual
designated to receive the proceeds of an insurance policy retirements account
trust or other asset In an insurance policy the person who is nominated is
normally the beneficiary
CASH SURRENDER VALUE
The amount that is available to the owner if a life insurance policy is surrendered
any time before the maturity dtd The amount represents the cash value minus
surrender charges and any outstanding loans due upon cancellation of the policy
COLLATERAL
A Temporary assignment of the monetary value of a life insurance policy as
security for a loan In the event of default the creditor would receive proceeds or
values only to the extent of his interest
CRITICAL ILLNESS REDER
A rider added to a life insurance policy to protect the insured against financial loss
in the event of terminal illness A critical illness rider makes living benefits
payable to the insured for medical expenses prior to death Accelerated(or living)
benefits paid reduce the death benefit payable to the beneficiary (ie) upon death
36
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
DATE OF COMMENCEMENT
The date on which cover begins following acceptance of the risk by the insurer
DATING BACK
For non-investment linked policies the commencement date of the policy can be
backdated within the same financial year This enables the life assured to take
advantage of the lower premium applicable to a younger age as the premiums is
calculated with reference to the date of commencement The insurance cover will
however begin only from the date of acceptance The extra premium on account of
dating back has to be paid up front
DEATH BENEFIT
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased
ENDOWMENT
Endowment insurance pays the sum assured upon the death of the life insured
during the policy term or on survival to the end of the policy term
EMTENDED TERM INSURANCE
A provision in some policies which provides the option of continuing the
insurance for a particular insured amount as per the policy condition as term
insurance
GRACE PERIOND
37
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
This provision offers the policyholder additional period of time after the due date
during which the premium can be paid The policy continues to remain in force
during this grace period and the premium continues to be payable
IMMEDIATE ANNUITY
An annuity that begins to make income payments immediately after the first
premium is paid as opposed to a deferred annuity
INSURANCE
Insurance is a policy a person buys and upon that personrsquos death the family will be
able to ger a certain sum of money
LAPSE
Termination of a life insurance contract because of non-payment of premiums If
there are no forfeiture values the policy lapses but may remain effective reduced
paid-up insurance
LIFE ANNUITY An annuity the makes regular income payments for the life of a
person The annuitant cannot outlive the payments Upon hisher death all income
payments cease and there are no beneficiary benefits
LIFE EXPECTANCY
The number of years a person is expected to lives determined by actuaries uaing
mortality tables this information is used to calculate annuity payments life
insurance premiums and annual minimum distributions form IRAs
LIFE ANNUITY
38
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
A person whose life is covered under a life insurance policy
LIFE EXPACTANCE TABLES
Mortality tables that are used to calculate life expectancy figures
MATURITY DATE
The date on which an endowment insurance policyrsquos face amount will be paid to
the policy-owner if the insured is still living
POLOCU BONUSES
In participating policies the company gives the policyholders a share in the profits
of the company in the form of bonuses Generally there are two types of bonuses
for insurance policies Reversionary bonus is guarantee addition to your insured
amount and is paid when the policy matures or when the life assured dies Cash
bonuses are paid out at periodical intervals
PREMIUM
A specified amount of money of money that the insurer receives in exchange for its
promise to provide the policy proceeds when a specific loss occurs
RENEWAL PREMIUMS
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy
39
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
TAXATION AND INSURANCE
Sections that deal with insurance are
1SECTION 10(10 D)
Final payments made by the insurer are fully exempted from income tax
2SECTION 80 (CCC)
Up to Rs 10000 per annum paid towards premium under pension plan is fully
exempted
3SECTION 80 (DD)
Up to Rs 40000 per annum paid towards premium tor the benefit of physically
handicapped dependent children is fully exempted
4SECTION 80 (C)
For approved savings by government of indie there is exemption from tax For life
insurance up to Rs 70000 per annum is exempted from tax
40
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
THEORITICAL FRAME WORK
BASICS OF UNIT LINDED INSURANCE PLANS
Introduction To ULIP
In India ULIP insurance policies are on the top in the popularity chart because it
offers more benefits than traditional life insurance plans There are many benefits
are available such as higher returns on investment partial withdrawal flexibility to
choose life cover wider fund options top up facility free switches tax benefits
etc
If you are looking for long term investment and better returns ULIP is a right
option to achieve your goal But you may find difficulties while purchasing the
ULIP because there are single and regular premium option You have to choose
the right option for you In single premium ULIP you need to pay a single
payment and you will enjoy the benefits throughout the policy term In case of
regular premium you need to pay premium on regular basis it can be paid by
annual half annual quarterly and monthly mode In terms of investment both
products offers similar options like equity debt and liquid Under regular premium
option you may ask for commitment to pay more But under single premium
product nobody will ask you to pay more as a matter of commitment In the initial
years of ULIP single premium product offer better returns than regular premium
product But its balance power shifts down latter But this is not in effect the
product is sold very aggressively due to IRDA norms Regular premium ULIP
41
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
products are also good in various factors such as affordability tax benefit and large
return
There are also ULIP charges to consider than single and regular premium It is also
important
to take a overview of different charges are under ULIP plans It includes premium
allocation
charge risk cover charges policy administration charges fund management
charges service
tax charge miscellaneous charge etc
At the end ULIP is a good mixture of life cover and investment But dont buy it
for
investment purpose only there are another good options available for the
investment Unit
linked insurance plan (ULIP) is a life insurance solution that provides the client
with the
benefits of protection and flexibility in investment It is a solution which provides
for life
insurance where the policy value at any time varies according to the value of the
underlying
assets at the time
The investment is denoted as unit and is represented by the value that it has
attained called as
Net Asset Value (NAV) ULIP came into play in 1960s and became very popular
in Western
42
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Europe and America The reason that is attributed to the wide spread popularity of
ULIP is
because of the transparency and the flexibility which it offers to the clients
As time progressed the plans were also successfully mapped along with life
insurance needs
to retirement planningIn todayrsquos times ULIP provides solution for all the needs of
a client
like insurance planning financial needs financial planning for childrenrsquos future
and
retirement planning
What Is ULIP
ULIP stands for Unit Linked Insurance Plans As we know that insurance is for
protecting
our life from the any uncertain events like death or accident The purpose of the
normal
insurance plan is just protecting the life but not ensuring any savings for the future
Many
people wanted plan which gives protection also gives the returns for their
investment So
insurance companies come up with the ULIP plan where the premium about is
invested in the
share market and returns better income on the maturity period
Unit-linked insurance plans ULIPs are distinct from the more familiar lsquowith
profitsrsquo policies
43
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
sold for decades by the Life Insurance Corporation lsquoWith profitsrsquo policies are
called so
because investment gains (profits) are distributed to policyholders in the form of a
bonus
announced every year ULIPs also serve the same function of providing insurance
protection
against death and provision of long-term savings but they are structured
differently
In lsquowith profitsrsquo policies the insurance company credits the premium to a common
pool
called the lsquolife fundrsquo after setting aside funds for the risk premium on life
insurance and
management expenses
Every year the insurer calculates how much has to be paid to settle death and
maturity
claims The surplus in the life fund left after meeting these liabilities is credited to
policyholdersrsquo accounts in the form of a bonus In a ULIP too the insurer deducts
charges
towards life insurance (mortality charges) administration charges and fund
management
charges The rest of the premium is used to invest in a fund that invests money in
stocks or
bonds The policyholderrsquos share in the fund is represented by the number of units
The value of the unit is determined by the total value of all the investments made
by the fund
44
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
divided by the number of units If the insurance company offers a range of funds
the insured
can direct the company to invest in the fund of his choice Insurers usually offer
three choices
an equity (growth) fund balanced fund and a fund which invests in bonds
In both lsquowith profitsrsquo policies as well as unit-linked policies a large part of the first
year
Premium goes towards paying the agentsrsquo commissions
Benefits Of Unit Linked Plan
ULIP distinguishes itself through the multiple benefits that it provides to the
consumer The
plan is a one stop solution providing
1 Life protection
2 Investment and Savings
Market linked fund based on risk profile
Switch option
Premium redirection
Automatic transfer plan(ATP)
3 Flexibility of cover continuance
4 Transparency
45
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
5 Extra protection with riders
Death due to accident
Disability
Critical illness
6 Liquidity
during the term partial withdrawals
at Maturity
7 Tax planning
FLOW CHART OF A UNIT LINKED PLAN
46
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
LESS 20 20000-4000=160000
16000-750=15250
For the age 30-mortality
At 150-per thousand
15000-invested in debt fund
At a NAV of 16-
953125 units allocated
MEASURES OF RUND PERFORMANCE
47
CONTRIBUTION CONTRIBUTION RELATED CHARGES DEDUCTED
MORTALITY amp RIDER
CHARGES DIDUCTED
THE CLIENT INCESTS RESULTANT
REJPRESENTED AS NAV
UNITS ALLOCATED
LIFE PROTECTION
INVESTED IN FOUNDS DEBT EQUITYBALANCED
FUND CHARGES DEDUCTED
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
SHARPErsquoS PERFORMANCE INDEX
Sahrpersquos performance index gives a single value to be used for the performance
ranking of various founds or portfolios Sharpe index measures the risk premium of
the portfolio relative to the total amount of risk in the portfolio This risk premium
is the difference between the portfoliorsquos average rate of return and the risk less rate
less rate of return the standard deviation of the portfolio indicates the risk The
index assigns the highest values to assets that have best risk-adjusted average rate
of return
Rp ndash Rf
St =
σ
Portfolio average return ndash Risk free rate of interest
sharpe index =
Standard deviation of the portfolio return
TRENORrsquoS PERFORMANCE INDEX
48
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
To understand the treynor index an investor should know the concept of
characteristic line The relationship between a given marker return and the fundrsquos
return is given by the characteristic live The fundrsquos performance is measured in
relation to the marker performance is measured in relation to market performance
the ideal fundrsquos return rises at a faster rate of return declines slowly than the
marker return in the decline The ideal fund may place its fund in the treasury bills
or short sell the stock during the decline and earn positive return
Portfolio average return ndash risk less rate of interest
Tn =
Beta ndash efficient of portfolio
TATA AIG PRODUCTS
49
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
ULIP Products
bull Tata AIG Life InvestAssure Flexi Supreme
bull Tata AIG Life Lakshya Supreme
bull Tata AIG Life Insurance Gyan Kosh
bull Tata AIG Life InvestAssure Plus Supreme
bull Tata AIG Life Insurance Swarna Pratigya
bull Tata AIG Life Insurance InvestAssure Gold Supreme amp Tata AIG Life Insurance InvestAssure Maximizer
Traditional Products
bull Tata AIG Life Raksha
bull Tata AIG Life Health Investor
bull Tata AIG Life Health Protector
bull Tata AIG Life Health First
bull Tata AIG Life MahaGurantee
bull Tata AIG Life MahaLife Gold
bull Tata AIG Life Assure Security amp Growth Plans
bull Tata AIG Life Assure Golden Years
bull Tata AIG Life Maha Guarantee Flexi
bull Tata AIG Life Star Kid
ANALYSIS AND INTERPRETATION
ANALYSIS OF THE ULIP EQUITY FUND
50
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Fund Objective provide high real rate of return in the long-term through high
exposure to equity investments while recognizing that there is significant
probabitility of negative return in the short-term the risk appetite is lsquohighrsquo
Inception Date 15-MAY-10
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 9236
Band deposits 764
Grand total 100
92
8
ALLOCATIONEquitybank deposits
Table showing return on fund and return on market
51
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -509 -1381
DEC 06 413 -509
APR 07 -796 0
AUG 07 344 0
DEC07 5124 20
APR 08 0 976
AUG 08 3364 3046
DEC 08 1632 10
APR 09 0 1111
AUG 09 690 941
DEC 09 852 699
APR 10 1705 135
AUG 10 -1984 -1676
o Average return on fund Rp 833o Standard deviation on fund σ 1344o Variance of marker 12418o Covariance 14268o Bata β 095o Risk free rate of return Rf 12o Sharpe index St -011o Treynor index Tn 3863
GRAPH OF ULIP EQUITY
52
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-30
-20
-10
0
10
20
30
40
50
60
RpRm
Axis
Title
INTERPRETATION
From above graph the actual performance of the equity fund is moving along with
the benchmark ndash BSE 100 since inception till Aug10
As the fund 9236 allocation is into equity market the changes in the market
conditions have the maximum influence on the increase amp decrease of the returns
ANALYSIS OF THE ULIP GROUTH FUND
53
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Fund objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining moderate probability of negative returns in the short-
term The risk appetite is defined as lsquomoderatersquo
Inception date 16-05-06
Benchmark 65 CRISIL composite bond index+35 BSE 100
ASSET ALLOCATION
3859
3403
2218
209
EquityDebenturesDeposits with banksgilts
Table showing return on fund and return on market
54
ALLOCATION TOTAL
Equity 3859
Debentures 3403
Deposits with banks 2218
gilts 209
Grand total 100
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Year RETURN ON FUND RETURN ON MARKET
AUG 06 -321 652
DEC 06 567 -139
APR 07 923 498
AUG 07 364 417
DEC07 0 -907
APR 08 129 388
AUG 08 351 196
DEC 08 244 148
APR 09 -367 -126
AUG 09 741 899
DEC 09 497 611
APR 10 -172 -122
AUG 10 967 891
o Average return on fund Rp 302
o Standard deviation on fund σ 716
o Variance of marker 4706
o Covariance 2768
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St 0142
o Trey nor index Tn 1009
55
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
GRAPH OF BALANCER
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
-6
-4
-2
0
2
4
6
8
10
12
RpRm
INTERPRETATION
From the above graph the return on fund and return on the marker move together
since the inception of the fund
The risk on the fund is 12 and average return is 3 this is because of
approximately 62 of fund is in the capital marker The change in the market
return has an impact with the return on fund
56
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
ANALYSIS OF THE ULIP BALANCED FUND
Fund Objective provide investment returns that exceed the rate of inflation in the
long-term while maintaining a low probability of negative returns in the short-
term The risk appetite is defined as lsquolow to moderatersquo
Inception Date 17-05-08
Benchmark 65CRISIL composite bond +BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Equity 1972
Debentures 5482
Deposits with banks 2224
gilts 322
Grand total 100
1972
5482
2224
322
EquityDebenturesDeposits with banksgilts
57
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
Oct 08 369 219
JAN09 0 196
APR 09 239 177
JUL09 -453 -649
OCT10 216 -396
APR10 079 226
JUL10 162 341
OCT10 356 027
DEC10 531 329
o Acreage return on fund Rp 166
o Standard deviation on fund σ 084
o Variance of marker 036
o Covariance 009
o Bata β 101
o Risk free rate of return Rf 12
o Sharpe index St -1230
Trey nor index Tn -1023
58
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
GRAPH OF ULIP BALANCED
Year 8-Oct 9-Jan 9-Apr 9-Jul 10-Oct 10-Apr 10-Jul 10-Oct 10-Dec
-8
-6
-4
-2
0
2
4
6
RpRm
INTERPRETATION
From the above graph the actual performance of the ulip balanced fund is moving
along with the benchmark line which is setup with 65 CRISIL composite bond
index =65 BSE 100
As the fund ulip balanced investment is in the debt market it yields less returns
with less risk The allocation to gilts was decreased to 322 from 805 On
expectations of hardening of yield curve
59
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
ANALYSIS OF CORPORATE BOND
Fund Objection provide returns that exceed the inflation rate while taking some
credit risk and maintaining a moderate probability of negative return in the short-
term The risk appetite is lsquolow to moderatersquo
Inception Date 03-04-06
Benchmark CRISIL composite bond index
ASSET ALLOCATION
3414
6277
309
Govt securitiesDebentures Gilts
60
ALLOCATION TOTAL
Govt securities 3414
Debentures 6277
Gilts 309
Grand total 100
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 403 341
DEC 06 0921 019
APR 07 -181 399
AUG 07 519 164
DEC07 802 781
APR 08 0 146
AUG 08 248 -241
DEC 08 -407 191
APR 09 343 261
AUG 09 121 0
DEC 09 729 518
APR 10 432 291
AUG 10 029 156
DEC10 0 0
o Average return on fund Rp 208o Standard deviation on fund σ 502o Variance of marker 1041o Covariance 786o Bata β 101o Risk free rate of return Rf 12o Sharpe index St -1564o Trey nor index Tn -802
61
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
GRAPH OF CORPORATE BOND
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-6
-4
-2
0
2
4
6
8
10
RpRm
INTERPRETATION
The return on the funs corporate band has started gearing up the returns from August
2006 which it has decreased to 309 during April 2007 and has crossed to
negative figures in April 2008 amp slightly increased to 14 in year 2010 and finally
stood 2 at the end the year
During the year 2010 even though the market return is negative the funds return is
positive which indicated that the fund managers fund allocation is dynamically
maintained
62
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
ANALYSIS OF ULIP GILT FUND
Fund Objective provide returns that exceed the inflation rate without taking any
credit risk and maintaining a low probability of a negative return in the short-term
The risk appetite is lsquolow to moderatersquo
Inception Date 31-05-2006
Benchmark BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Band deposit 69012
Gilts 3088
Grand total 100
6912
3088
Band depositGilts
63
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKET
AUG 06 641 791
DEC 06 361 1491
APR 07 489 4291
AUG 07 0 1719
DEC07 -628 -1862
APR 08 1364 1641
AUG 08 419 6
DEC 08 861 -241
APR 09 941 6
AUG 09 961 472
DEC 09 0 0
APR 10 246 921
AUG 10 -64 -142
DEC10 2816 2362
o Average return on fund Rp 873 o Standard deviation on fund σ 1446o Variance of marker 9421o Covariance 16246o Bata β 027121o Risk free rate of return Rf 12o Sharpe index St -0226
64
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
o Trey nor index Tn 0230
GRAPH OF ULIP GILT
Year 6-Aug
6-Dec
7-Apr
7-Aug
7-Dec
8-Apr
8-Aug
8-Dec
9-Apr
9-Aug
9-Dec
10-Apr
10-Aug
10-Dec
-30
-20
-10
0
10
20
30
40
50
60
RpRm
INTERPRETATION
The return on the fund ulip gilt had good return from August 2006 as 909 and
increased to 25 April 2007 which continued to increase to 40 at the end of
2003 During 2004 there is fall in the return and even crossed to negative returns
but recovered at the end to the year 2008 which is at 15 return
The average return is 11 and the risk corresponding to it is 13 is because 97
of the fund invested in equity
The Average return and the risk of fund gilt are higher than the other funds
65
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
ANALYSIS OF THE MONEY MARKET FUND
Fund Objective maintain the capital value of all contribution and all interest
additions at all times The risk appetite is lsquolowrsquo
Inception Date 31-05-04
Benchmark 65CRISIL composure bond index+35 BSE 100
ASSET ALLOCATION
ALLOCATION TOTAL
Other money market 9318
Certificate of deposits6 682
Grand total 100
9318
682
Other money marketCertificate of deposits6
66
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Table showing return on fund and return on market
Year RETURN ON FUND RETURN ON MARKER
AUG 06 918 42
DEC 06 1462 641
APR 07 462 721
AUG 07 181 0
DEC07 421 621
APR 08 -821 462
AUG 08 916 828
DEC 08 1147 1062
APR 09 1829 1728
AUG 09 0 0
DEC 09 196 362
APR 10 429 524
AUG 10 -329 1229
DEC10 -587 -621
o Acreage return on fund Rp 553o Standard deviation on fund σ 621o Variance of marker 6219o Covariance 4794o Bata β 102o Risk free rate of return Rf 12o Sharpe index St 136o Trey nor index Tn -426o
67
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
GRAPH OF ULIP MONEY MARKET
Year 06-Aug
06-Dec
07-Apr
07-Aug
07-Dec
08-Apr
08-Aug
08-Dec
09-Apr
09-Aug
09-Dec
10-Apr
10-Aug
10-Sep
-5
0
5
10
15
20
Series 1Series 2
INTERPRETATION
From the above graph the actual performance of the fund money market is moving
along with the benchmark since inception that is from May 2006
The return of the fund money market has started gearing up the return from May
2006 has slightly increased during the year 2007 and in the next year 2008 it is at
689 and increased to 909 in the year August 2009
In the year 2010 the return crossed to the negative figures showing negative return
of 5 and in the same year September 2010 it finally recovered and stood at
positive return of 789
This shows that the fund on an average return is only 553 with the risk of
621 As the fund 40allocation is into the equity market the changes in the
market condition had maximum influence on the increase and decrease of the
returns
68
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Table showing return standard deviation bet Sharpe index and treynor index
on all the market funds of RELIANCE LIFE INSURANCE
FUND Rp SD BETA St Tn
Equity 833 1344 095 011 013
Growth 302 716 101 -116 -729
Balanced 166 084 101 -1002 -8149
Corporate
Bond
208 502 101 -1564 -802
Gilt 873 1446 121 162 1421
Money Market 553 621 102 136 -426
69
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Perforation Evaluation of RELIANCE LIFE INSURANCE marker fund
based on Sharpe performance index
SHARPErsquoS PERFORMANCE INDEX
Sharpersquos performance index gives a single value to be for the performance ranking
of various founds of portfolios Sharpe index measures the ris premium of the
portfolio relative to the total amount of risk in the portfolio This risk premium is
the difference between the portfoliorsquos average rate of return and the risk less rate of
return The standard deviation of the portfolio indicates the risk The index assigns
the highest values to assets that have best risk-adjusted average rate of return
RpH _ Rf
St = -------------
σ
Sharpe Index = portfolio average return ndash Risk free rate of interest
Standard deviation of the portfolio return
FUND RETUR SD BETA St Tn RISK RANK
70
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
N ON FUND
FREE RATE
OF RETURN
Equity 833 1344 095 -027 3863 12 II
Growth 302 716 101 0142 1009 12 IV
Balanced 166 084 101 -1230 -1023 12 VI
Corporate Bond
208 502 101 -250 1010 12 V
Gilt 873 1446 121 0230 -0226 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
Above funds in RELIANCE LIFE INSURANCE gilt fund ranked as better fund
because the Sharpe index is more than other funds The second best fund is equity
with an index of 019 the fund balance and the balancer ranked as third The larger
the Sharpe index better the fund has performed thus from all the and fourth
respectively with a moderate return and moderate risk
According to the shape index growth and corporate bond rankted as fifth and sixth
respectively with -302 and -343 Sharpe index
71
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
Performance Evaluation of RELIANCE LIF INSURANCE FUNDS BASED
ON Treynorsrsquo performance
TREYNORrsquoS PERFORMANCE INDEX
To understand the treynor index an investor should know the concept of
characteristic line the relationship between given marker return is given by the
characteristic lice The fundrsquos performance is measured The ideal fundrsquos return
rises at a faster rate declines slowly than the market return in the decline The ideal
fund may place its fund in treasury bills or short sell the stock during the decline
and earn positive return
Tn = portfolio average return ndash risk less rate of interest
Beta co-efficient of portfolio
Tn = Rp ndash Rf
Β
Treynorrsquos risk premium of the portfolio is the difference between the average
return and the risd less rate of return The risk premium depends on the systematic
risk assumed in a portfolio
72
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
FUND RETURN ON FUND
SD BETA St Tn RISK FREE RATE
OF RETUR
N
RANK
Equity 833 1344 095 011 013 12 II
Growth 302 716 101 -116 -729 12 IV
Balanced 166 084 101 -1002 -8149 12 VI
Corporate Bond
208 502 101 -1564 -802 12 V
Gilt 873 1446 121 162 1421 12 I
Money Market
553 621 102 136 -426 12 III
INTERPRETATION
According to treynor inex the fund eqity fund is more desirable than other fund
which was in first rand with 1103 the second best fund is equity with an index of
991 the funds then funds balancer and balancer ranked as third ampfourth
respectively
The funds growth and corporate ranked as fifth and sixth respectively with 52 and
-676
73
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
SUMMARY
The focus of the study was performance evaluation of ULIP funds in RELIANCE
LIFE INSURANCE with an objective to study and understand how the funds has
performance in marker RELIANCE life insurance company limited ser up in 24 th
November two thousand which is regulated by IRDA act
In the study 6 selected funds were taken into consideration that is Equity Growth
Balanced Corporate Bond Gilt Money Market
The main aim is to find the risk and return of each fund and compare their
performance with sharpe index and treynor index The past 4 years quarterly
market prices data of each selected fund have been collected The calculation of
risk has done based on tools of standard deviation and beta
The fund equity is performing well in the market the risk trader can optimize his
return from the funds equity fund which give which give high return with high risk
The risk averse can invest in Corporate Bond Gilt Money Market the normal
investor can invest in is Equity Growth Balanced Corporate Bond Gilt Money
Market with moderate return and moderate risk
Depending on the computation of return standard deviation Beta sharpe index
treynor index it made the investor easier to decide to invest in ULIPS and if they
invest which fund to opt for
This study makes the investors to understand clearly the performance of each fund
in RELIANCE life insurance it makes easier for them to rake the right decision
74
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
FINDING
1 Life insurance Corporation of India is the first public sector organization
under investment institutions because of unmapped life insurance marker in
india there is part of scope for private insurance companies to enter into
Indian marker which play a prominent role in selling insurance plans
2 The insurance companies are now a days selling the policies whose
performance is based on market conditions which once otherwise popular as
unit linked insurance plans
3 From among all the unit linked insurance plans life time money market plan
has unique feature of life time money market which accumulates savings and
creates a retirement by investing regularly in unit linked policy and to get
regular income post retirement
4 A unit linked plan provides an opportunity for the discerning investor to
benefit from the returns available in the capital market without going for
direct investment in the capital market
5 In the entire unit linked insurance policies the investment risk in investment
portfolio burned by the policy holders
6 These loans are grouped under different funds and these funds are invested
in capital market to yield high returns
75
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
7 The different fund options which are available in RELIANCE life insurance
are is Equity Growth Balanced Corporate Bond Gilt Money Market
8 According to the sharpe and treyonor index the funds Gilt amp Equity has
ranked first and second respectively with high return and risk According to
sharpe index and treynor index the funds corporate amp balanced as ranked
fifth and sixth respectively with comparatively less risk and less return
76
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
SUGGESTIONS
The unit linked insurance plans gives the return which are market based and are ricky So the companies should regulate the funds which give almost benefit to the investments
Since people are getting aware of capital markers and are showing interest in defferent financial investments other than traditional products RELIANCE life insurance should take almost care to inform the investor in detail about their ULIPS and all the fund options available for each plan
Among all the funds in RELIANCE life insurance the funds gilt amp equity funds ranked first second respectively which can be optimistic investors and the company should manage these funds in spite of high fluctuations in market
The funds ulip balanced can be most likely investors which yield moderate return and risk and company should notice that the fund yields constant returns The other funds like Equity Growth Balanced Corporate Bond Gilt Money Market yield very low return compare to other funds so the company should take almost care in managing the funds portfolio with the moving marker conditions to have constant returns
Except equity of the funds are performing negatively according to shrpe and treynor index It can be suggested to turn out the negative performance into positive performance by managing the portfolio of the efficiently and effectively
77
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78
BIBLIOGRAPHY
BOODS
1 Security analysis and portfolio management - Puunithavathi Pandian
2 Investment management - VK Bhalla
3 Security analysis and portfolio management - VA Avadhani
BUSINESS MAGAZINES
1 Business world
2 Business today
WEBSITES
1 www Irdaindia-orgwwwirda onlineorg
2 www Reliance lifecom
3 wwwmoneycontrolcom
4 wwwinsurance amp lifecom
NEWS PAPERS
1 Business line
2 Economic times
3 Times of India
78