ing vysya life (neesha report)
TRANSCRIPT
TOPIC :- NEESHA
INDEAPTH STUDY OF THE INSURANCE
WITH THE HELP OF Comparison of ULIPS vs MF
ACKNOWLEDGEMENT
Words are tools of expression, but they fail miserably when it comes to thanks giving.
I am indebted to so many persons that a complete acknowledgement would be
encyclopedic. The successful completion of any research project required guidance
and help from a number of people. I was fortunate to have all the support from the
employees of ING Vysya life insurance, where I was placed for the training project.
Hence, I take this opportunity to express my profound sense of gratitude to all those
who extended their wholehearted support for carrying out the project work.
I wish to express my deepest gratitude to Mr. Pradeep Sharma, (Branch Manager) of
Udaipur Branch for his timely guidance which was a immense importance. I would
also like to thank Mr. Ashwini Dadhich, (Sr. Sales Manager) under whose guidance
the project was completed. I am thankful for his guidance and support.
I would also like to thank Mr. Kanwar Singh Gurjar, (Assistant Training Manager) for
his time and concern, guidance and support which helped me a lot during the project.
In the end I wish to thank all those names who have directly or indirectly helped me
in various ways in carrying out this project successfully.
PREETI UPADHYAYA
MBA PART II
PREFACE
The main motive behind the summer training of the MBA program is to provide the
practical aspect of the organizations working environment. The study is the out come
of my project that has been produced as partial fulfillment of the Masters of Business
Administration from Geetanjali Institute Of Management, Udaipur.
This training has helped to visualize and realize about the congruency between the
theoretical learning in the college and the actual practices of management. This
overall project has given me an insight into the actual corporate world apart from the
theoretical environment. It has allowed me to face the world full of ups and downs
and to get a glance of the future corporate world in which we are going to enter
My summer training project at ING VYSYA LIFE INSURANCE is a complete
experience in itself and it has become an inspirable part of my knowledge of
management being learned in MBA programme.
This project is based on to make comparision between unit linked insurance plan and
mutual funds.
EXECUTIVE SUMMARY
As a part of MBA I completed my summer training at ING Vysys Life Insurance
company Limited (Udaipur Branch) for 6 weeks.
ING Vysya Life Insurance Company Limited a part of the ING Group the world’s
largest financial services provider which entered the private life insurance industry in
India in September 2001.Headquartered at Bangalore, ING Vysya Life is currently
present in 246 cities and has a network of over 300 branches.
ING is a global financial institution of Dutch origin offering banking, insurance and
asset management to over 60 million private, corporate and institutional clients in
over 50 countries. ING operates through three businesses in India, ING Vysya Life
Insurance, ING Vysya Bank and ING Investment Management. ING Vysya Bank is a
premier private sector bank with over 76-year heritage and 1.5 million satisfied
customers. ING Investment Management comprises of two operations: ING Fund - a
mid sized asset management company with a retail investor focus and Optimix - a
fund of funds business.
Firstly I obtained knowledge regarding the Life Insurance market, terms used in it,
and various kinds of transaction running in the market. After having an overview of
Life Insurance market I was assigned the project on “comparision of unit linked
Insurance market vs mutual funds”
During the survey it was found that most of the customer did not have proper
knowledge regarding Life Insurance concepts, so due to lack of knowledge, they
hesitated to buy the Life Insurance policy, especially that of private sector .
Life style of people is changing rapidly and every person wants to safe guard their
future by minimizing risk. So the customers should get proper knowledge about Life
Insurance so that they can minimize their risk
Finally, it was a learning experience for me. I came in close contact with the market
trends and learned about the various technicalities. It was a great corporate exposure
for me to introduce myself to the corporate world.
In order to fulfill the objectives of the research the following research methodology
was used
1. Sample universe – the sample universe selected was Udaipur
2. Sample unit – the sample unit selected were residents of Udaipur. The sample
unit were segregated into four segments :
A. Businessmen:
All the people who are running their own business i.e. owners of shoe business,
readymade garments, departmental & general stores, etc. were approached.
B. Professionals:
All the people who have a professional degree & practicing their own
profession i.e. Professionals like CA, doctors, engineers, lawyers, architects
etc. were approached.
C. Govt. employees:
All the people who are employed either by the central or state governments of
India i.e. employees who are working in RSMM Ltd., PWD, AVVNL, BSNL,
Education department (Govt. Schools & colleges), etc. were approached.
D. Private Employees:
All the people who are employed by privately owned organizations of India
i.e. employees who are working in various private banks (HDFC, ICICI,
IndusInd, and IDBI) & other private firms & companies were approached.
1. Research type : the research type selected here was exploratory type research.
Exploratory research is that research in which facts and figures are found
pertaining to that study of topic which has never being researched before. It
was concerns with investigating an entirely new area of study. Here the
objectives of the study are kept In mind and details fulfilling these objective
are explore using different sources of primary data.
2. Nature of data collection: Primary data was used over here. This is a data
specifically collected for a purpose. There are various sources of primary data
like questionnaires, interviews etc.
3. Research instruments: primary data has to be collected through various
research instruments. Questionnaires interviews were the research instruments
selected here.
CONTENTS
Chapter Topic Page No.
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Acknowledgement
Preface
Executive Summary
Contents
Introduction & Scope of the project
Company profile
Introduction to insurance
Introduction to ULIPS
Introduction to mutual funds
Comparision of ULIPS vs MF
Research Methodology
a) What is Research?
b) Objectives
c) Research Design
d) Data Sources
e) Data Collection Techniques
f) Market Segmentation
g) Fieldwork & Sample Design
Data Analysis & Interpretation
Comparative Study
Results
Conclusions
Suggestions/Recommendations
Limitations of the study
Bibliography
Annexur
i
ii
iii
iv
SCOPE OF THE PROJECT
The scope of the project may be summarized in following points:
1. The topic of the study is “Comparision of unit linked plans with Mutual
Funds”. The topic itself signifies the importance & scope of the project study.
2. This study is aimed to have the first hand idea about the savings/ investments
of people in various avenues.
3. This study is also aimed to know the general criteria/motive/objective of
investments by the people.
4. This project report will help the organisation in assessing the awareness of
various occupational segments (Businessmen, Professionals, Govt. employees,
Private employees) about Mutual Funds &ULIP. This awareness is estimated
in the form of percentage.
5. This project report will also indicate that in which investment avenue people
like to invest the most.
6. This study will also include the comparative analysis of various investment
avenues available to a prospective investor.
7. The present project report will assist the organisation in knowing the tastes &
preferences of the people for their investments.
8. There may be a number of topics under this subject, which can further be
studied. Some of them are as follows:
i. To find out the correlation between income of the people & their
choice of investment.
ii. To find out the awareness of SIP (Systematic Investment Plan) in
Mutual Fund among the investors.
iii. To compare the ELSS (Equity Linked Savings Schemes) with other
Tax Saving Instruments.
Company profile
About ING Group
ING Group is known for its philosophy of ‘keeping it simple’. This thought is
the result of ING Group’s 150 years of understanding of customers’ needs and
fulfilling them.
ING is a global financial institution of Dutch origin. It has 150 years of
experience, and provides a wide array of banking, insurance and asset
management services in over 50 countries and is trusted by over 60 million
customers. Its 1,13,000 employees work daily to satisfy a broad customer base
– individuals, families, small businesses , large corporations, institutions and
governments. The ING Group has gone from strength to strength year after
year and is the world's 13th largest company*. The ING Group is the world's
largest financial institution* with over US $ 1 trillion# in assets and profits of
US $ 8.5 billion in 2005#.
Over the last 150 years, ING Group has grown to become the largest insurer in
the world*. Today it touches the lives of millions of people across 50
countries.
ING Group has wide and deep experience in setting up companies in new
markets, which require substantial investments underlining ING's long-term
commitment. In the last 20 years, ING Group has established successful life
insurance companies in 15 countries contributing to the development of
insurance services in these countries successfully.
Fortune 500, July 2007 has ranked ING Group as the world’s thirteenth
largest company. As per the ranking, ING Group is the world’s largest
financial service provider.
The Annual Interbrand Report 2007 which ranks global brands across all
categories has ranked ING among the top 100 global brands. ING’s ranking
has risen from 85 to 81 compared to last year.
ING Group’s Presence in India
ING operates through three businesses in India, ING Vysya Life Insurance, ING
Vysya Bank and ING Investment Management. ING Vysya Bank is a premier private
sector bank with over 76-year heritage and 1.5 million satisfied customers. ING
Investment Management comprises of two operations: ING Fund - a mid sized asset
management company with a retail investor focus and Optimix - a fund of funds
business.
ING Vysya Life - An Overview
ING Vysya Life Insurance Company Limited a part of the ING Group the world’s
largest financial services provider^ entered the private life insurance industry in India
in September 2001. Headquartered at Bangalore, ING Vysya Life is currently present
in 246 cities and has a network of over 300 branches, staffed by 7,000 employees and
over 51,000 advisors, serving over 5.5 lakh customers.
Product Portfolio
ING Vysya Life follows a “customer centric approach” while designing its products.
The Company’s product portfolio offers products that cater to every financial
requirement, at all life stages.
In fact, the company has developed the LifeMaker a simple tool
which can be used to choose a plan most suitable to a specific
customer based on his needs, requirements and current life stage.
This tool helps you build a complete financial plan for life at
every lifestage, whether the requirement is Protection, Savings,
Investment or Retirement. Suitable products from ING Vysya
Life Insurance’s product portfolio for each such requirement,
makes selection of your plan an easy exercise.
The Company aims to make customers look at life insurance afresh, not just as a tax
saving device but as a means to live life to the fullest. It believes in enhancing the
very quality of life, in addition to safeguarding an individual's security.
Distribution Channels
ING Vysya Life has a diversified distribution platform. While Tied Agency remains
the strongest channel, the Alternate Channels business within ING Vysya Life is one
of the fastest growing distribution channels. ING Vysya Life has strengthened its
position as the unparallel leader in the life insurance industry in cooperative banks tie
ups. The company currently has tie ups with 130 cooperative banks across the
country. The Alternate Channels division has Bancassurance, ING Vysya Bank,
Corporate Agents and SMINCE.
The Brand Positioning
In 2008, ING Vysya Life developed its unique brand positioning ‘Mera farz’. This
positioning means, ING Vysya Life helps its customers fulfill their responsibilities
towards themselves and their families. This powerful positioning has helped ING
Vysya Life create a distinct identity for itself. The latest brand campaign with a very
catchy jingle dwells on how a little planning and a helping hand from ING Vysya life
can help lighten the burden of responsibilities that often come with happy moments
and let you enjoy your life without any worries.
About ING Vysya
ING Vysya (a group terminology) has 3 businesses in India, ING Vysya Life
Insurance, ING Vysya Bank and ING Vysya Mutual Fund. ING Vysya Bank is a
premier private sector bank with a 70-year heritage and 1.5 million satisfied
customers. ING Vysya Mutual Fund is a mid sized asset management company with a
retail investor focus
ING VYSYA LIFE INSURANCE
The world’s largest life insurance company
The world’s largest financial services company
It has got assets of 6200000 crores
It has got 150 years of financial expertise and six crores customers in more than 50
country The mission of the company is to have the best and the most productive
advisors force. The core values are:
Professional
Entrepreneurial
Trustworthy
Approachable
ING IN INDIA
Shareholders of ING vysya life insurance are:
Gujarat ambuja cement with 14.87%
Exide industries ltd.With 50 %
ENAM group with 9.13%
The rest 26 % remains with ING
ING entered India in 1991
1994- ING barings NV offering investment banking ,corporate finance and other
financial services.
1997- ING insurance representative office
1999- ING investment management pvt. Ltd. Providing mutual fund products
2000- ING venture capital
2001- ING vysya life launched
2002- ING buys 44 % stake in vysya bank and merges ING Barings with vysya bank
2003- ING vysya financial services launched
The opportunities in front of ING life insurance is
As many as 71 % Indians are not financially protected against major ailments
Annualized growth of 19 %
ING’S Mission
“To set the standard in helping our customers manage their financial future”.
Life insurance players in India
LIC
BAJAJ ALLIANZ LIFE INSURANCE COMPANY LTD.
BIRLA SUN LIFE INSURANCE COMPANY LTD.
HDFC STANDARD LIFE INSURANCE COMPANY LTD.
ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD.
MAX NEWYORK LIFE INSURANCE COMPANY LTD
MET LIFE INSURANCE COMPANY LTD
KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE COMPANY
LTD
SBI LIFE INSURANCE COMPANY LTD
ING VYSYA LIFE INSURANCE COMPANY LTD
TATA AIG LIFE INSURANCE COMPANY LTD
AVIVA LIFE INSURANCE COMPANY PVT. LTD
RELIANCE LIFE INSURANCE COMPANY LTD
SAHARA LIFE INSURANCE COMPANY LTD
BHARTI AXA LIFE INSURANCE COMPANY LTD
INTRODUCTION TO INSURANCE
After opening up of Indian economy in 1991 there was a huge potential available in
every industry or business. Just like other industry liberalization of the Indian
insurance market was recommended indicating that market should be to the private
sector competition and ultimately to the foreign private sector competition.
WHAT IS INSURANCE?
The business of insurance is related to the protection of economic value of
assets .Every asset has a value. The asset have been created through the efforts of
owner in the expectation that either through the income generated there from or
some other output some of his needs would be met in the case of a factory or a cow,
the production is sold and income is generated .
There is no direct income. There is a normally expected life time for the asset during
which time is expected to perform. The owner aware of this can so manage of his
affairs that by the end of the life time, a substitute is made available to ensure that the
value or income is not lost. However if the asset gets lost earlier being destroyed or
made non functional through an accident or other unfortunate event, the owner and
those deriving benefits there from, suffer insurance is a mechanism that helps to
reduce such adverse consequences.
Insurance provides us with a sense of financial support especially during that time of
crisis irrespective of the fluctuation in the stock market. It provides for our career
goals right from your childhood years life insurance is all about making sure that our
family has adequate financial resources to make their plans and dreams come true. It
provides financial protection to help your family or business after your death.
Insurance is basically a sharing device. The losses to assets resulting from natural
calamities (like fire, flood, earthquake, accidents, etc.) are met out of common pool
contributed by a large number of people who is exposed to similar risks.
CLASSIFICATION OF INSURANCE
1. Life insurance- Life insurance is concerned with making provision for a
specific event happening to the in individual such as death.
2. Non life insurance- Non life insurance is commonly concerned with the
provision for a specific event, which affects a property such as fire, flood, theft
etc.
INDIAN SCENARIO
India has traditionally been a high savings oriented country being on par with the
thrifty Japan. Insurance sector in the United States of America is as big in size as the
banking industry. This gives us an idea of how important the sector is. Insurance
sector channelises the savings of people for long term investment. In India this sector
will bring the nation’s own money for the nation.
The global life insurance stands at $1,521.2 billion, while the non life insurance
market is placed at $922.4 billion.
India takes the 22nd position with US $ 9.93 billion annual premium collections. Out
of one billion people in India only 35 million people are covered by insurance.
Indian insurance market is set to touch $ 25 billion by 2010, on the assumption of 7%
annual growth in GDP.
This has made the sector the hottest one in India after IT. With social security and
security to the public at large being the agenda for opening the sector, the role of the
regulator becomes more serious and that would be carefully watched at every step.
HISTORY OF INSURANCE
A brief history of the Insurance sector:
The business of life insurance in India in its existing from started in India in the year
1818 with the establishment of the Oriental Life Insurance Company in Calcutta.
Some of the important milestones in the life insurance business in India are:
1912: The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.
1928: The Indian Insurance Companies Act enable the government to collect
statistical information about both life and non-life insurance businesses.
1938: Earlier legislation was consolidated and amended by the Insurance Act with the
objective of protecting the interests of the insuring public.
1956: 245 Indian and Foreign insurers and provident societies were taken over by the
Central government and nationalized. LIC formed by an Act of parliament, viz. LIC
Act,
1956, with a capital contribution of Rs.5 corers from the government of India.
THE BENEFITS OF INSURANCE
Replacement of income
One prime reason for buying life insurance is to complete the income lost in the
event of untimely death of the life insured. When this regular income stops, the
proceeds from a life insurance policy can be used to support the family members.
Maintenance of lifestyle
In case of the death life insured, family members are often hard pressed trying to
arrange for funds that can maintain lifestyle. Life insurance offers protection against
such an unfortunate eventuality.
Expenses due to premature death
Life insurance can play a crucial role to pay off any debt left behind by the person
insured. For example car loans, medical bills, mortgages, credit card payment, etc.
are often left in case of sudden death. These obligations can be met with life
Insurance without any depletion in family assets.
Planning for important events with the cost living going up day by day prudent
people would go for a life insurance as the most cost effective means to ensure that
the important mile stone in their children’s lives are not hampered by the
uncertainties of life.
Investment:
Life insurance is great avenue to help. A charitable cause, or people with
philanthropic
desire but short of means, life insurance provides the option to contribute much more
than is possible by the life insured
TYPES OF LIFE INSURANCE
1. Term insurance: It covers the life for a term of 1 or more years. It pays only
death benefits only if the policy holder dies during the period the insurance is
in force. Term insurance generally offers the cheapest form of life insurance.
You can renew most of the term insurance policies for one or more terms even
if the health condition has changed.
2. Whole life insurance: It covers the life for as long as the person lives if his
premiums are paid. The person generally pays the same premium throughout
his life time. Some whole life policies allow to pay the premium for a shorter
period (15, 20, 25 years). The premium for these policies is higher. There are
options in the market to have a return of premium option in a whole life
policy. That means after a certain age of paying premiums, the company will
pay back the premium to the life assured but the coverage will continue.
3. Money back insurance: The money back plan not only covers your life, it
also assures you the return of a certain percent of the sum assured as cash
payment at regular intervals. It is a savings plan with the added advantage of
life cover and regular cash inflow. This plan is ideal for planning for specials
moments like a wedding, your child’s education or purchase of an assets, etc.
Money back plan have “participating” and “nonparticipating” versions in the
market.
4. Endowment assurance: Endowment insurance is a level premium plan with a
savings feature. At maturity, a lump sum is paid out equal to the sum assured
(plus dividends in a par policy). If death occurs during the term of the policy
then the total amount of insurance and any dividends (par policy) are paid out.
5. Universal life: This is a flexible life insurance policy and is also market
sensitive. You decide on the several investment options on how your net
premium are to be invested. While the money invested has the potential for
significant growth, such funds are subject to market risks including the loss of
the principle.
6. Unit linked product: Market linked plans or unit linked insurance plans
(ULIP) are similar to traditional insurance policies with the exception that
your premium amount is invested by the insurance company in the stock
market. Market linked insurance plans (MLP) are the way to invest mutual
funds and invest in a basket of securities, allowing you to choose between
investment options predominantly in equity , debt or a mix of both (called
balanced option).
INSURANCE TERMS
There are several terms associated with insurance that need to be known by an
individual to understand their impact. Some terms are technical and hence there
might be some effort required in order to understand them properly and then use
them to one’s advantage.
Insured-The insurance contract involves the insurer and insured. This means that
there is one party that is giving the insurance and the other party who is getting the
cover of insurance. The insured is the subject matter of the insurance cover. This
means that the person who is insured is the one whose life is covered in life
insurance.Every life insurance policy will have an insured. One can distinguish
the insured from the owner of the policy who is the persone who takes the policy .
in many cases , the owner and the insured might be the same persone as the person
who takes the policy will also be the one whose life is coverd .
Insurer
The insurer is the entity that provides the insurer. The insuance company will be
covering the life and the property of the various people entities. The insurer is one
of the parties that will complete the insurance perpose. The strength of the
insurance company is very important in ensuring growth of the insurance sector.
Beneficial
The beneficial is the person who has to receive the proceeds under the insurance
policy on the occurance of risk. Different people could become a beneficial under
various circumstances. This will main the beneficial will receive the amount in
case of the death of the insure.
In some cases the insure or the person whose life is covered will receive the pay
out .
This will happen when there are policy that pay out specific sum on the
completion of certain number of pairs of the policy. If the individual survives for
this time period than the pay out that is specified will be received by him.
Premium
The sum paid by the insured to the insurance company as consideration for
insurance cover. This has to be paid in accordance with the term of the policy. The
premium can be paid monthly, quarterly, half yearly or annually. While the
premium stops after a certain period, the cover on the life of the person will
continue for a longer period.
Surrender value
There may be cases when the person taking the policy is not able to pay the
required amount of premium. The person may like to discontinue the policy .If the
required conditions are met, then there can be a surrender of the policy to the
company. The policy is closed at an early stage and given back to the insurance
company at a price lower than the sum assured. This price is known as the
surrender value.
Paid up value
In some cases when the insurance policy is running the policy holder would not
like to surrender and loss the insurance cover available. There is an option
available to achieve the objective of stopping the payment of premium but keep
the insurance cover. These can be done when the policy is paid to a certain extent
and the cover will be limited to the proportion of the premiums paid till now.
Unit allocation
When the premium is paid by the investors in unit linked policies a part of it goes
to various expenses and the remaining amount is used to buy units in the fund
specified in the scheme and these will appreciate according to the movement in
the net asset value of the scheme.
Death benefit
The life insurance company pays the beneficiary the amount that is equal to the
sum assured in case of death of person cover under the policy. This is known as
the death benefit given to those who have been nominated to receive this benefit
in case of the death of the insured.
Top up
Several insurance policies have the facility where the insured can raise the amount
of investment by paying necessary additional amount of premium. Depending
upon the nature of the policy, it can lead to increase in the cover. This facility
reduces the workload and conditions to be fulfilled by the person if he had gone
for an additional policy by paying same amount.
Benefits of life insurance:
1. Superior to any other saving plan –life insurance policies offers protection
against the risk of death which is nit available in any other contemporary saving plan.
In the event of death of policy holders the insurance makes available the full sum
assured to the policies holders near and dear once. In comparison any other saving
plan would amount to the total saving accustomed till date. If the death occurs
prematurely, such saving can be much lesser than the sum assured
2. Encourage thrift –A saving deposits can easily be withdrawn. The payment of
life insurance premium however is considered sacrosanct payment of interest on
mortgage thus; a life insurance policy in fact brings about compulsory savings and is
viewed with the same seriousness as the payment of interest on mortgage. Thus a life
insurance policy in fact brings about compulsory savings.
3. Easy settlement and protection against creditors
A life insurance policy is the only financial instrument the proceeds of which can be
protected against the claim of a creditor of the assured by effecting a valid
assignment.
4. Administering the legacy for beneficiaries
Speculative expenses can quickly cause the squandered. Several policies have
foreseen this possibility and provide for payments over a period of years or in a
combination of installment and lump sum amount.
5. Ready marketability and suitability for quick borrowing
A life insurance policy can after a certain time period become cost effective that
means to ensure that the important milestone in their children’s lives are not
hampered by the uncertainties of life.
6. Investment
Life insurance is also an investment. Apart from tax benefits which are also allowed
by the govt. of India for investing in life insurance, some life insurance policies offer
returns on investments along with the covert for life. This helps us with long term
financial goals.
7. Hospital cash benefits
Many policies can also provide for covering the hospitalization expenses along with
cover for life.
8. Tax benefit
Under the income tax act, tax relief under section 88 is available for the premium paid
and section 10[10D] benefits are available for the death or maturity or surrender
proceeds from a life insurance policy.
THE IRDA BILL
On July 14, 2000, the chairman of the IRDA, Mr. N. Rangachari set forth a set of
regulations in an extra ordinary issue of the Indian gazette those details of the
regulation.
Insurance regulatory and development authority is constituted by the government of
India, which governs all the companies that are operating in the insurance sector in
India. As per the section 4 of IRDA act 1999, insurance regulatory and development
authority (IRDA) specifies the composition of authority.
The authority is a 10member team consisting of
1. Chairman
2. Five whole team members
3. Four part time member
All appointed by the govt. of India.
Mission of IRDA
To protect the interest of the policy holders, to regulate, to promote and ensure orderly
growth of the insurance industry and for matters connected with or incidental there to.
Duties, powers and functions of IRDA
Section 14 of IRDA act 2000 lays down the duties, powers and functions of IRDA.
The authority shall have the duty to regulate, promote and ensure orderly growth of
insurance and re-insurance business.
Issue to the applicant a certificate of registration, renew, modify, withdraw,
suspend or cancel such registration.
Protection of the interest of the policy holder in matters of concerning
assignment of policy, nomination by policy holder, insurable interest,
settlement of insurance claim, surrender value of policy and other terms and
condition of contract.
Specifying requisite qualification, 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 insurance
and re-insurance business.
Levying fees and other charges for carrying out the purpose of this act.
Calling for information from, undertaking inspection of, conducting enquiries
and investigation including audit of the insurers, intermediaries and other
organization connected with the insurance business.
Control and regulation of the rates, advantages, terms and conditions that may
be offered by the insurers in respect of general insurance business not
controlled by the TARIFF ADVISORY COMMITTEE under section 64 U of
the insurance act 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
INTRODUCTION TO MUTUAL FUND
MUTUAL FUNDS-MEANING AND DEFINATION:
A Mutual Fund is a pool of money, collected from investors, and is invested according
to certain investment objectives.
A Mutual Fund is created when investors put there money together .It is therefore a
pool of the investors’ funds. The most important characteristic of a mutual fund is that
the contributors and the beneficiaries of the fund are the same class, namely the
investors. The term mutual means that investors contribute to the pool, and also benefits
from the pool. There are no other claimants to the funds. The pool of funds held
mutually by investors is the Mutual Fund.
A Mutual Fund’s business is to invest the funds thus collected, according to the wishes
of the investors who created the pool. In many market these wishes articulated as
“investment mandates”. Usually, the investor appoints professional investment
managers, to manage their funds. The same objective is achieved when professional
investment managers create a “product”; offer it for investment to the investor .This
product represent a share in the pool, a pre-states investment objective. For example, a
Mutual Fund, which sells a “money market Mutual Fund”, is actually seeking investors
willing to invest in a pool that would invest predominantly in a money market
instruments.
CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciation realized are shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund is the most
suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost. The
flow chart below describes broadly the working of a mutual fund:
Mutual Fund Operation Flow Chart
There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund:
ORGANISATION OF A MUTUAL FUND
Mutual fund schemes may be classified on the basis of its structure & its investment
objective.
By Structure:
1. Open ended funds:
An open ended fund is one that is available for subscription all through the year.
These do not have a fixed maturity date. Investors can conveniently buy & sell units
at Net Asset Value (NAV) based prices. The key feature of open ended schemes is
liquidity.
2. Closed-ended funds:
A closed ended fund has a stipulated maturity period which generally ranging from3
to 15 years. The fund is open for subscription only during a specified period. Investors
can invest in the scheme at the time of the initial public issue and thereafter they can
buy or sell the units of the scheme on the stock exchanges where they are listed. In
order to provide an exit route to the investors, some close-ended funds give an option
of selling back the units of the Mutual Fund through specific repurchase at NAV
related prices. SEBI Regulations stipulate that at least one of the two exit routes is
provided to the investor.
3. Interval Funds:
Interval funds combine the features of open-ended schemes. They are open for sale or
redemption during pre-determined intervals at NAV related prices.
By Investment Objective:
1. Growth Funds:
The aim of growth fund is to provide capital appreciation over the medium to long
term. Such schemes normally invest a majority of their corpus in equities. It has been
proved that returns from stocks, have outperformed most other kind of investments
held over the long term.
Growth schemes are ideal for investors having a long-term outlook seeking growth
over a period of time.
2. Income Funds:
The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate
debentures & govt. securities. Income funds are ideal for capital stability & regular
income.
3. Balanced Funds:
The aim of balanced funds is to provide both growth & regular income. Such schemes
periodically distribute a part of their earning & invest both in equities & fixed income
securities in the proportion indicated in their offer documents. In a rising stock
market, the NAV of these schemes may not normally keep pace, or fall equally when
the market falls. These are ideal for investors looking for a combination of income &
moderate growth.
4. Money Market Funds:
The aim of money market funds is to provide easy liquidity, preservation of capital &
moderate income. These schemes generally invest in safer short term investments
such as treasury bills, certificates of deposit, commercial paper & inter bank call
money. Returns on these schemes may fluctuate depending upon the interest rates
prevailing in the market. These are ideal for corporate & individual investors as a
means to park their surplus funds for short periods.
Other Schemes:
1. Tax Saving Schemes:
These schemes offers tax rebates to the investors under specific provisions of the
Indian income tax laws as the govt. offers tax incentives for investments in specified
avenues. Investments made in equity linked saving schemes (ELSS) are allowed as
deduction u/s 80C of the income tax act, 1961.Investments in these funds would
enable the investor to avail the benefits under clause (xiii) of subsection (2) of section
80C of the Income Tax Act, 1961.Investment made in these schemes up to Rs. 1 lakh
by the eligible investor being an individual or a HUF will qualify for deduction under
this section of the act.
2. Gilt Funds:
They are g-sec (govt. securities) with medium & long term maturity. Securities with
one year maturity are covered under money market funds. These funds have low
default risk. The minimum amount of investment is quite high in these funds so they
are beyond the range for small investors.
3. Short-term Funds:
These funds invest in bonds & debentures of high quality rated by rating agencies like
CRISIL etc. (of lesser duration viz.18-24 months), g-sec & money market
instruments. STP helps in reducing volatility in the debt market & at the same time
providing liquidity & stable returns.
4. Liquid Funds:
They invest in bonds, call & money market & treasury bills. They provide an ideal
investment option for a period of 2-60 days. They provide an ideal opportunity to earn
on amount lying ideal in current a/c, which would instead generate no return. Unlike
the income / bond funds or the short- term funds there is no interest rate or market risk
involved here.
Special Schemes:
a. Industry specific schemes:
Industry specific schemes invest only in the industries specified in the portfolio. The
investment of these funds is limited to specific industries like InfoTech, FMCG &
Pharma etc.
b. Index schemes:
Index funds attempt to replicates the performance of a particular index such as BSE
Sensex or the NSE
c. Sector Specific Schemes:
Sector funds are those, which invest, exclusively in a specified sector. This could be
an industry or a group of industries or various segments such as ‘A’ group shares or
initial public offerings.
BENEFITS OF MUTUAL FUNDS:
The advantages of investing in mutual funds are:
Professional Management
Diversification
Convenient Administration
Growth Potential
Low Costs
Liquidity
Transparency
Flexibility
Affordability
Tax benefits
Well regulated
1. Professional Management
Mutual Fund provide the services of experienced and skilled professionals,
backed by a dedicated investment research team that analysis the performance and
prospects of companies and selects suitable investments to achieve the objective
of the scheme.
2. Diversification
Mutual Fund invests in a number of companies across a broad cross-section of
industries and sectors. This diversification reduces the risk because seldom do all
stocks decline at the same time and in the same proportion. You achieve this
diversification through a Mutual Fund with far less money than you can do on
your own.
3. Convenient Administration
Investing in a Mutual Fund reduces paper work & helps you avoid many problems
such as bad deliveries, delayed payments & follow up with brokers & companies.
Mutual Fund saves your time & makes investing easy & convenient.
4. Growth potential
Over a medium to long term, Mutual Funds have the potential to provide a higher
return as they invest in a diversified basket of selected securities.
5. Low Costs
Mutual Funds are relatively less expensive way to invest compared to directly
investing in the capital markets because the benefits of scale in brokerage,
custodial & other fees translate into lower costs for investors.
6. Liquidity
In open-ended schemes, the investor gets the money back promptly at NAV based
prices from the Mutual Fund.
In closed-ended schemes, the units can be sold on a stock exchange at the
prevailing market prices or the investor can avail of the facility of direct
repurchase at NAV based prices by the Mutual Funds.
6. Transparency
You get regular information on the value of your investment in addition to
disclosure on the specific investments made by your scheme, the proportion
invested in each class of assets & the fund manager’s investment strategy &
outlook.
7. Flexibility
Through features such as regular withdrawal plans & dividend re-investment
plans, you can systematically invest or withdraw funds according to your needs &
convenience.
8. Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A
Mutual Fund because of its large corpus allows even a small investor to take the
benefit of its investment strategy.
10. Tax Benefits
Dividends are tax free for all equity & balanced schemes.
The Union Budget 2005-06 has made investments in ELSS eligible for inclusion
in the Rs. 1 lakh limit that will be deducted while computing taxable income u/s
80C.
An investment in ELSS helps investors to maintain a healthy real return by
countering inflation impact.
11. Well Regulated
All Mutual Funds are registered with SEBI & they function within the provisions
of strict regulations designed to protect interest of investors. The operations of
Mutual Funds are regularly monitored by SEBI.
INTRODUCTION TO ULIPs:
INTRODUCTION
Unit Linked Insurance Plan (ULIP) is one in which the customer is provided with a
life insurance cover and the premium paid is invested in either debt or equity products
or a combination of the two. In other words, it enables the buyer to secure some
protection for his family in the event of his untimely death and at the same time
provides him an opportunity to earn a return on his premium paid. In the event of the
insured person's untimely death, his nominees would normally receive an amount that
is the higher of the sum assured or the value of the units (investments). To put it
simply, ULIP attempts to fulfill investment needs of an investor with
protection/insurance needs of an insurance seeker. It saves the investor/insurance-
seeker the hassles of managing and tracking a portfolio or products
It provides for life insurance where the policy value at any time varies according to
the value of the underlying assets at the time. ULIP is life insurance solution that
provides for the benefits of protection and 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).
ULIP came into play in the 1960s and is popular in many countries in the world. The
reason that is attributed to the wide spread popularity of ULIP is because of the
transparency and the flexibility which it offers.
As times progressed the plans were also successfully mapped along with life
insurance need to retirement planning. In today's times, ULIP provides solutions for
insurance planning, financial needs, financial planning for children’s marriage
planning also can be done with this.
Features
ULIPs are not an investment tool; it’s actually an insurance product.
The Feature of an ULIP is to get insurance for say 40 years, u don’t need to
pay for 40 years, instead its premium paying term is between one and five
years.
One can get insurance cover of up to 50 times of first year premium paid.
One can also get good returns like a mutual fund.
After few years, if u found your investment doubled due to market upswing, u
can take back the invested amount and leave the rest with the policy, u can
enjoy the insurance cover with literaly zero investment.
ULIPs also serve the same function of providing insurance protection against
death and provision of long-term savings, but they are structured differently.
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 policyholder’s 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 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.
Insurers love ULIPs for several reasons. Most important of all, insurers can
sell these policies with less capital of their own than what would be required if
they sold traditional policies.
Since ULIPs are devised to mobilise savings, they give insurance companies
an opportunity to get a large chunk of the asset management business, which
has been traditionally dominated by mutual funds.
Benefits
ULIP provides multiple benefits to the consumer. The benefits include:
Life protection
Investment and Savings
Flexibility
Adjustable Life Cover
Investment Options
Transparency
Options to take additional cover against
Death due to accident
Disability
Critical Illness
Surgeries
Liquidity
Tax planning
Mutual fund vs. Unit linked plan
Which is a good product to take? Mutual fund + term insurance or unit linked
insurance plans?
Well it depends on the knowledge level of the buyer, and the smartness of the
salesman.
Mutual funds is the 'safety of the principal' guaranteed, plus the added advantage of
capital appreciation together with the income earned in the form of interest or
dividend. Insurance is a provision against risk and it is a device with which man tries
to protect himself from risk in life. The recent development in the financial innovation
is Unit Link Insurance Policy (ULIP), which covers the concept of mutual fund and
insurance.
A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with
a life insurance cover and the premium paid is invested in either debt or equity
products or a combination of the two. In other words, it enables the buyer to secure
some protection for his family in the event of his untimely death and at the same time
provides him an opportunity to earn a return on his premium paid. In the event of the
insured person's untimely death, his nominees would normally receive an amount that
is the higher of the sum assured or the value of the units (investments). To put it
simply, ULIP attempts to fulfill investment needs of an investor with
protection/insurance needs of an insurance seeker. It saves the investor/insurance-
seeker the hassles of managing and tracking a portfolio or products.
Comparision of ULIPS vs MFS
Below is a brief comparision of ULIP (Unit Linked Insurance Product) vs MF
(Mutual Funds) specific to the Indian market.
Primary Objective
MFs: Investments
ULIPs: Protection + Investments
Investment Duration
MFs: Works out for Medium term, Long Term Investors. Risky for Short Term
investors.
ULIPs: Works out for Long Term Investors only.
Flexibility
MFs: Very flexible. Plenty of scope to correct your mistakes if you made any wrong
investment decisions. You can easily shuffle your portfolio in MFs.
ULIPs: Flexibility is limited to moving across the different funds offered with your
policy. Correcting mistakes can turn out to be expensive. Moving funds from one
ULIP to an other ULIP of a different fund house can be expensive.
Liquidity
MFs: Very liquid. You can sell your MF units any time (except ELSS). Some MF's
like those from Reliance have introduced redemptions at ATMs.
ULIPs: Limited liquidity. Need to stay invested for the minimum number of years
specified before you can redeem.
Investment Objective
MFs: MF's can be used as your vechile for investments to achive different objectives.
(Eg: Buying a car three years from now. Downpayment for a home five years from
now. Childrens education 10 years from now. Childrens marriage 15 years from now.
Retirement planning 25 years from now. Medical expenses after retirement 25 years
from now)
ULIPs: ULIPs can be used for achieving only long term objectives (Children
education, Children’s marriage, Retirement planning)
Tax Implications
MFs: All investments in MF's don't qualify for section 80C. Only investments in
ELSS qualify for 80C.
ULIPs: Provide Tax Benefits under section 80C.
MFs: Returns on equity MF's are exempt from long term capital gains tax. (Unless tax
laws change in the future).
ULIPs: We are moving from EEE to EET. No clarity if ULIPs will be taxed under
EET.
MFs: Tax liabilities when moving across from debt to equity funds.(Returns from
debt MF's are taxed.)
ULIPs: Very flexible in moving between equity and debt funds (not tax implications
until maturity of the policy).
Strings Attached (fine print)
MFs: None so ever. At most you pay a small exit load if any.
ULIPs: Some strings attached for your policy to be in effect. Minimum number of
premiums need to be paid. Minimum fund balance need to be always maintained. (I
personally do not like policies which say pay three years premium and get insurance
cover for the next 25 years since there are a lot of ifs and butts involved. A lot of
assumptions made and nothing is in your hand, it could turn out your fund balance
might be exhausted after just 12 years of insurance cover).
IN BRIEF:
Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual
funds in terms of their structure and functioning. As is the case with mutual funds,
investors in ULIPs are allotted units by the insurance company and a net asset value
(NAV) is declared for the same on a daily basis.
Similarly ULIP investors have the option of investing across various schemes similar
to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced
funds and debt funds to name a few. Generally speaking, ULIPs can be termed as
mutual fund schemes with an insurance component.
However it should not be construed that barring the insurance element there is nothing
differentiating mutual funds from ULIPs.
Despite the seemingly comparable structures there are various factors wherein the two
differ.
In this article we evaluate the two avenues on certain common parameters and find
out how they measure up.
1. Mode of investment/ investment amounts
Mutual fund investors have the option of either making lump sum investments or
investing using the systematic investment plan (SIP) route which entails commitments
over longer time horizons. The minimum investment amounts are laid out by the fund
house.
ULIP investors also have the choice of investing in a lump sum (single premium) or
using the conventional route, i.e. making premium payments on an annual, half-
yearly, quarterly or monthly basis. In ULIPs, determining the premium paid is often
the starting point for the investment activity.
This is in stark contrast to conventional insurance plans where the sum assured is the
starting point and premiums to be paid are determined thereafter.
ULIP investors also have the flexibility to alter the premium amounts during the
policy's tenure. For example an individual with access to surplus funds can enhance
the contribution thereby ensuring that his surplus funds are gainfully invested;
conversely an individual faced with a liquidity crunch has the option of paying a
lower amount (the difference being adjusted in the accumulated value of his ULIP).
The freedom to modify premium payments at one's convenience clearly gives ULIP
investors an edge over their mutual fund counterparts.
2. Expenses
In mutual fund investments, expenses charged for various activities like fund
management, sales and marketing, administration among others are subject to pre-
determined upper limits as prescribed by the Securities and Exchange Board of India.
For example equity-oriented funds can charge their investors a maximum of 2.5% per
annum on a recurring basis for all their expenses; any expense above the prescribed
limit is borne by the fund house and not the investors.
Similarly funds also charge their investors entry and exit loads (in most cases, either
is applicable). Entry loads are charged at the timing of making an investment while
the exit load is charged at the time of sale.
Insurance companies have a free hand in levying expenses on their ULIP products
with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory
and Development Authority. This explains the complex and at times 'unwieldy'
expense structures on ULIP offerings. The only restraint placed is that insurers are
required to notify the regulator of all the expenses that will be charged on their ULIP
offerings.
3. Portfolio disclosure
Mutual fund houses are required to statutorily declare their portfolios on a quarterly
basis, albeit most fund houses do so on a monthly basis. Investors get the opportunity
to see where their monies are being invested and how they have been managed by
studying the portfolio.
There is lack of consensus on whether ULIPs are required to disclose their portfolios.
During our interactions with leading insurers we came across divergent views on this
issue.
While one school of thought believes that disclosing portfolios on a quarterly basis is
mandatory, the other believes that there is no legal obligation to do so and that
insurers are required to disclose their portfolios only on demand.
Some insurance companies do declare their portfolios on a monthly/quarterly basis.
However the lack of transparency in ULIP investments could be a cause for concern
considering that the amount invested in insurance policies is essentially meant to
provide for contingencies and for long-term needs like retirement; regular portfolio
disclosures on the other hand can enable investors to make timely investment
decisions.
ULIPs vs Mutual Funds
ULIPs
Mutual Funds
Investment amounts
Determined by the investor and can be modified as well
Minimum investment amounts are determined by the fund house
Expenses
No upper limits, expenses determined by the insurance company
Upper limits for expenses chargeable to investors have been set by the regulator
Portfolio disclosure
Not mandatory*
Quarterly disclosures are mandatory
Modifying asset allocation
Generally permitted for free or at a nominal cost
Entry/exit loads have to be borne by the investor
Tax benefits
Section 80C benefits are available on all ULIP investments
Section 80C benefits are available only on investments in tax-saving funds
* There is lack of consensus on whether ULIPs are required to disclose their
portfolios. While some insurers claim that disclosing portfolios on a quarterly basis is
mandatory, others state that there is no legal obligation to do so.
4. Flexibility in altering the asset allocation
As was stated earlier, offerings in both the mutual funds segment and ULIPs segment
are largely comparable. For example plans that invest their entire corpus in equities
(diversified equity funds), a 60:40 allotment in equity and debt instruments (balanced
funds) and those investing only in debt instruments (debt funds) can be found in both
ULIPs and mutual funds.
If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a
debt from the same fund house, he could have to bear an exit load and/or entry load.
On the other hand most insurance companies permit their ULIP inventors to shift
investments across various plans/asset classes either at a nominal or no cost (usually,
a couple of switches are allowed free of charge every year and a cost has to be borne
for additional switches).
Effectively the ULIP investor is given the option to invest across asset classes as per
his convenience in a cost-effective manner.
This can prove to be very useful for investors, for example in a bull market when the
ULIP investor's equity component has appreciated, he can book profits by simply
transferring the requisite amount to a debt-oriented plan.
5. Tax benefits
ULIP investments qualify for deductions under Section 80C of the Income Tax Act.
This holds good, irrespective of the nature of the plan chosen by the investor. On the
other hand in the mutual funds domain, only investments in tax-saving funds (also
referred to as equity-linked savings schemes) are eligible for Section 80C benefits.
Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for
example diversified equity funds, balanced funds), if the investments are held for a
period over 12 months, the gains are tax free; conversely investments sold within a
12-month period attract short-term capital gains tax @ 10%.
Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a
short-term capital gain is taxed at the investor's marginal tax rate.
Despite the seemingly similar structures evidently both mutual funds and ULIPs have
their unique set of advantages to offer. As always, it is vital for investors to be aware
of the nuances in both offerings and make informed decisions.
Various Schemes
However, there are some schemes in which the policyholder receives the sum assured
plus the value of the investments. Various schemes have been tailored to suit different
customer profiles and, in that sense, offer a great deal of choice. The advantage of
ULIP is that since the investments are made for long periods, the chances of earning a
decent return are high. Just as in the case of mutual funds, buyers who are risk averse
can buy debt schemes while those who have an appetite for risk can opt for balanced
or equity schemes.
COMPARISION OF CHARGES:
If there is an investment of Rs.60,000 every year in a mutual fund of a leading fund
house and also the same amount in ULIPS of HDFC, ICICI and BAJAJ ALLIANZ.
The following are the charges are considered.
MFS
Loading charges = 2.25%
Fund Management Charge = 2.50%
HDFC Unit Linked Endowment Plus
Loading charges = 60% first year, 1% from second year
Fund Management Charge = 0.80%
Admin charge = Rs.240 per annum
Loyalty bonus = 0.1% each year
Bajaj Allianz Unit Gain Plus
Loading charges = 24% first year, 3% from second year
Fund Management Charge = 1.75%
Admin charge = Rs.240 per annum
ICICI Lifetime Plus
Loading charges = 25% first year, 25% second year, 3% third and fourth year, 1%
from fifth year
Fund Management Charge = 1.75%
Admin charge = Rs.720 per annum
If the investments grew by 10%, the following is what the returns would look like if
all the charges are being considered.
* The returns from HDFC Unit Linked Endowment Plus will beat MF returns by 9TH
YEAR
* The returns from Bajaj Allianz Unit Gain Plus will beat MF returns by 11TH YEAR
* The returns from ICICI Prudential Lifetime Plus will beat MF returns by 12TH
YEAR
CONCLUSION
On the long run (10+ years), ULIPs are infact cheaper than MFs in terms of charges.
Hidden charges which are not quiet evident to the eye like fund management charge
eat up a major portion of returns in MFs making them more expensive than ULIPS
over time.
Example: Pension Plan vs Mutual Funds
There is a query asked by a investor that whether he would be better off investing in a
pension plan offered by a life insurance company or investing in mutual funds. Given
below is an analysis on the options available to the investor.
Set of Variables.
The client’s age is 38 years and he would like to retire 22 years hence i.e. at
the age of 60 years
The client would like to invest an amount of Rs 1,000,000 (Rs 1 m) each year
for three years. In total, he will invest an amount of Rs 3 m over 3 years.
The client has been suggested a single premium plan of Rs 1 m with additional
‘top-ups’ worth Rs 1 m p.a. (per annum) for the following two years. In all,
the client would be paying Rs 3 m over the 3-yr period.
The client has a high-risk appetite and would like to remain invested in
equities throughout the tenure of the pension plan.
The client has a well-diversified portfolio including mutual funds and stocks.
Based on the information, there is a likely retirement solution for the investor.
Let us first take a look at how investments in the unit linked pension plan (ULPP) pan
out.
Pension plan: Preparing for the future
Investment
amt (Rs)
One-time
charge (%)
Admn.
Charges (Rs)*
Fund Mngt
Charges (%)
Investment
Tenure (Yrs)
Net maturity
Value (Rs)
1,000,000
2.50
180
0.80
22
18,400,000
1,000,000
2.50
180
0.80
21
1,000,000
1.00
180
0.80
20
*Administration charges are subject to 5.00% inflation per annum.
Investments in unit linked pension plan (ULPP)
If the client decides to buy the pension plan, then he would be paying Rs 1,000,000 in
the first year. Since this is a single premium plan, one-time charges on the same are
2.50% (i.e. in the first year). In other words, Rs 25,000 would be deducted from the
client’s single premium amount and the remaining amount (i.e. Rs 975,000) would be
invested in the 100% equity ULPP option. This amount will remain invested for the
entire 22-yr tenure.
The charges for any additional top-ups in the second year too would be to the tune of
2.50%. Similar to the first year, Rs 25,000 would be deducted from the second year’s
top-up amount. So Rs 975,000 would be invested over 21 years.
One-time charges for any top-ups from the third year onwards fall to 1% for the year.
Therefore, only Rs 10,000 (i.e. 1% of Rs 1,000,000) would be deducted and the
remaining amount would be invested. The third year amount (Rs 990,000) will remain
invested for a 20-yr period (i.e. time to maturity).
Fund management charges (FMC) for managing equities in the given ULPP are
0.80% p.a. Administration charges are assumed to be Rs 180 p.a. (increasing at an
assumed inflation rate of 5.00%).
As can be seen from the table above, assuming a compounded growth rate (CAGR) of
10% p.a. over a 22-Yr tenure, the client’s investments will grow to approximately Rs
18,400,000.
As against the ULPP given above, let us now analyse how investments in a mutual
fund would have worked out over a similar tenure.
How do mutual funds fare?
Investment
amt (Rs)
Entry load
(%)
Fund Mngt
Charges (%)*
Investment
Tenure (Yrs)
Net maturity
Value (Rs)
1,000,000
2.25
2.00
22
15,240,000
1,000,000
2.25
2.00
21
1,000,000
2.25
2.00
20
*FMC is assumed to be 2.00% for the first 5 years, 1.75% for the next 5 years and
1.50% the remaining tenure.
Investments in a mutual fund
Similar to a ULPP, the client would invest Rs 1,000,000 p.a. for 3 years in a mutual
fund scheme. However, unlike a one-time initial charge associated with the ULPP
above, mutual funds usually have an entry/exit load on their schemes. Assuming an
entry load of 2.25% for each of his three annual investments (of Rs 1,000,000), the
net amount invested would be drawn down by Rs 22,500 (i.e. 2.25% of Rs 1,000,000)
each year for the initial three years.
We have also assumed a decreasing FMC on the mutual fund schemes- the
assumption here is it would be 2.00% for the first 5 years, 1.75% for the next 5 years
and 1.50% for the remaining period thereafter. The ‘decreasing FMC’ assumption is
based on the fact that as the corpus for a mutual fund scheme grows over a period of
time, economies of scale come into play. This helps the mutual fund spread its costs
over a larger corpus, thereby reducing its overall cost of managing the fund.
As with the ULPP, assuming a 10% rate of growth over a 22-yr period, the mutual
fund investments would have grown to approximately Rs 15,240,000. The corpus
generated by ULPP is higher than the mutual fund corpus by Rs 3,160,000 (i.e.
20.73%).
The reason why ULPP scores over mutual funds is because of a low FMC. The FMC
on the ULPP under review is 0.80% throughout the tenure as compared to the mutual
fund FMC, which is in the 1.50%-2.00% range. Over the long term, FMC makes a
significant impact by reducing the corpus available for investments. In other words,
lower the FMC, higher the investible surplus and vice-versa.
In our view therefore, the client would be better off investing his money in the ULPP.
However, analysis on pension plans versus mutual funds would be considered myopic
if deliberated only from the expenses point of view. There are some inherent
advantages as well as disadvantages that both ULPP and mutual fund investments
offer.
1. Maturity proceeds
The maturity payout differs for ULPP as compared to mutual funds. Only up to one-
third of the maturity proceeds are allowed to be withdrawn under the pension plan; the
remaining two-third amount has to be ‘compulsorily’ invested in an annuity from a
life insurance company. The annuity helps generate an income stream for a time
period as specified by the individual. Conversely, in an open-ended structure, equity
funds allow the individual to withdraw the entire corpus whenever he wants.
2. Diversification
Mutual funds offer the benefit of diversification across various parameters like fund
management style (aggressive vs. conservative) and investment strategy (e.g. large-
cap orientation, mid-cap orientation, value style of fund management, growth style).
This level of diversification is not possible with the ULPP under consideration. Also,
in case an individual feels that a particular mutual fund has not lived up to
expectations, then he can redeem his investments in that particular scheme and invest
in another scheme that fits into his criteria (i.e. modify his portfolio). The same is not
entirely possible with a ULPP- since the individual has already invested his entire
‘available’ savings into only one ‘plan’.
3. Track record
Several equity funds have a track record to boast of. A good track record helps
individuals identify mutual funds that have performed well across time horizons as
well as market phases.
However, the same is not the case with unit linked insurance plans, which are a recent
phenomenon. While some of them may have done well over the short time period that
they have existed, we would like to evaluate their performance over a longer time
frame of at least 5 years before giving a conclusive view.
So what is the bottom line? As can be seen from our calculations and analysis, the
client is better off investing in the ULPP as opposed to equity funds; but of course one
needs to keep in mind the inherent disadvantages of ULIPs as mentioned above.
ADVANTAGES OF ULIPS OVER MUTUAL FUNDS:
1. Can easily rebalance your risk between equity and debt without any tax
implications.
2. Best suited for medium risk taking individuals who wish to invest in equity
and debt funds (at least 40% or higher exposure to debt).
3. No additional tax burden for those investing mainly in debt unlike in MFs.
RESEARCH METHODOLOGY
What is Research?
Research is a scientific & systematic search for pertinent information on a specific
topic. It is an art of scientific investigation. Research is a voyage of discovery. It is also
said to be the pursuit of truth with
The role of research in several fields of applied economics, whether related to business
or to economy as a whole, has greatly influenced in modern times. The increasing
complex nature of business & government has focused attention on the use of research
in solving problems.
The stages which are there in research process are as follows:
1. Problem formulation or Objectives of the Study
2. Preparation of the research design
3. Data Sources
4. Data Collection Techniques
5. Market Segmentation
6. Fieldwork & Sample Design
7. Data Analysis & Interpretation
8. Developing Logical Conclusion
1. Objectives of the Study-
The major objective of the project was to comprise unit linked insurance plans with
mutual funds.
2. Preparation of the Research Design-
A research design is the arrangement of the conditions for collection & analysis of data.
Actually it is the blue print of research project. The research design is as follows:
Descriptive Research
a. Survey Method
b. Questionnaire Method
3. Data Sources-
The data collection process was carried out in various stages. These stages can be
clubbed under two major heads.
1. Primary Source-Survey
2. Secondary Sources
1. Primary Source-Survey:
A random survey was carried out while going out to contact the respondents.
2. Secondary Sources:
Here the data collection tools were: directories, special publications, yellow pages,
etc. There were still many such potential clients who were not listed in such
publication so we had to find out about them through personal references & by
generating leads from the various clients who gave us the names of various influential
people.
4.Data Collection Techniques-
The Data was collected through questionnaire & telephone interviewing. The data
collection period was 45 days i.e. from 1July, 2008 to 15 August, 2008
Questionnaire:
The data was collected on a printed questionnaire, in which questions were asked in a
logical order. Each question has a specific meaning. The data analysis is based on the
data collected through these questions.
5. Market Segmentation-
The market segmentation was done keeping in mind what types of clients were
available in the market. These segments are namely:
A. Businessmen
B. Professionals
C. Govt. employees
D. Private employees
Each Segment is clearly defined as follows:
A. Businessmen:
All the people who are running their own business i.e. owners of shoe business,
Readymade garments, departmental & general stores, etc. were approached.
B. Professionals:
All the people who have a professional degree & practicing their own profession
i.e.
Professionals like CA, doctors, engineers, lawyers, architects etc. were
approached.
C. Govt. employees:
All the people who are employed either by the central or state governments of
India i.e.
employees who are working in RSMM Ltd., PWD, AVVNL, BSNL, Education
department
(Govt. Schools & colleges), etc. were approached.
D. Private Employees:
All the people who are employed by privately owned organizations of India i.e.
employees who
are working in various private banks (HDFC, ICICI, IndusInd, and IDBI) &
other private firms
& companies were approached.
6. Fieldwork & Sample Design-
Data collection for this project was not an easy job without clearly identifying the exact
areas which have to be included in the data gathering exercise.
For the purpose of sampling, following steps were used:
i. Defining the population or the universe
ii. Developing a sampling frame
iii. Selecting the sampling procedure
iv. Determining the sample size
v. Selecting the specified sample member
These steps have been explained below one by one:
i. The Universe: The universe for the research is Udaipur city.
ii. The sampling frame: The sampling frame may be defined as the listing of the
general components of the individual unit that comprise the defined population. For this
project the sampling frame was all the businessmen, professionals, govt. employees &
private employees of Udaipur (urban).
Businessmen Various shops & Trade houses
Professionals Various Associations
Govt. employees Various Govt. Offices
Private employees Various Privately owned firms
iii. Sampling procedure: Sampling procedure used in the project is non probability
sampling. A purposive type of sampling was done and the required information was
collected through convenience and judgmental sampling.
iv. The sample size: The sample size when the complete data was collected came out to
be 120. The sample was designed as follows:
Businessmen 30
Professionals 30
Govt. Employees 30
Private Employees 30
Sample Size 120
Non-probability Sampling
Judgmental Sampling Convenience Sampling
v. The data: The data was gathered by moving around in the field. This data added up
to the already existing database (through references) which was available with us in
the form of secondary data as directories & walk-ins.
7. Data Analysis & Interpretation:
Analysis of the data was done by drawing inferences through what was collected as
input from the respondents. The data analysis & interpretation part is dealt in detail on
the next page.
Interpretation was given on the basis of data analysis
DATA ANALYSIS
The data has been collected from various segments of the market on a random basis.
The data was collected via a questionnaire in which different questions were asked in
a logical order. The data has been analyzed as follows:
Market Segmentation: The entire population has been categorized into four
segments. 30 respondents are sampled from each of the segment. In this way the
sample size comes to be 120. These segments are:
S.No.
Segment
No. of respondents
1. Businessmen 30
2. Professionals 30
3. Govt. Employees 30
4. Private Employees 30
Sample Size 120
Avg. savings (p.a.)
Professionals
Total=30
Businessmen
Total=30
Govt. Employees
Total=30
Private Employees
Total=30
Below 10%
9
13
8
5
11-20%
3
8
7
10
21-30%
13
4
8
11
31-40%
0
3
5
1
Above 40%
5
2
2
3
Table 1: Segment wise Savings Analysis:
1. The following pi-chart & graph shows that out 30 professionals:
.
30% people have savings up to 10% of their income.
10% people have savings between 11-20% of their income.
43.33% people have savings between 21-30% of their income.
None of the people have savings between 31-40% of their income.
16.67% of the people have savings above 40% of their income
2.The following pi-chart & graph shows that out 30 Businessmen:
43.33% people have savings up to 10% of their income.
26.67% people have savings between 11-20% of their income.
13.33% people have savings between 21-30% of their income.
10% people have savings between 31-40% of their income.
6.67% of the people have savings above 40% of their income.
3.The following pi-chart & graph shows that out 30 Govt. Employees:
26.67% people have savings up to 10% of their income.
23.33% people have savings between 11-20% of their income.
26.67% people have savings between 21-30% of their income.
16.66% people have savings between 31-40% of their income.
6.67% of the people have savings above 40% of their income.
4.The following pi-chart & graph shows that out of 30 Private Employees:
16.67% people have savings up to 10% of their income.
33.33% people have savings between 11-20% of their income.
36.67% people have savings between 21-30% of their income.
3.33% people have savings between 31-40% of their income.
10% of the people have savings above 40% of their income.
Table 2: The investment option in which saving/investment is being done by different
segments:--
Investment options
Professionals
Total=30
Businessmen
Total=30
Govt. Employees
Total=30
Private Employees
Total=30
Bank deposit
3
2
5
2
Life insurance
16
10
16
5
Recurring deposit
1
2
4
1
Shares/MF
6
7
2
18
others
4
9
3
4
The following pi-chart & graph shows that out of 30 Professionals:
10% people have invested in Bank Deposit.
53.33% people have invested in Life Insurance.
3.33% people have invested in Recurring Deposit
20% people have invested in Shares/MF.
13.33% of the people have. invested in others avenue.
The following pi-chart & graph shows that out of 30 Businessmen:
6.67% people have invested in Bank Deposit.
33.33% people have invested in Life Insurance.
6.67% people have invested in Recurring Deposit
23.33% people have invested in Shares/MF.
30% of the people have. invested in others avenue.
The following pi-chart & graph shows that out of 30 Govt. Employees:
16.67% people have invested in Bank Deposit.
53.33% people have invested in Life Insurance.
13.33% people have invested in Recurring Deposit
6.67% people have invested in Shares/MF.
10% of the people have. invested in others avenue.
The following pi-chart & graph shows that out of 30 Private Employees:
6.67% people have invested in Bank Deposit.
16.67% people have invested in Life Insurance.
3.33% people have invested in Recurring Deposit
60% people have invested in Shares/MF.
13.33% of the people have. invested in others avenue.
Table 3: Rating to investment instruments:--5 means most preferred & 1 means least
preferred.
Investment options
Professionals
Total=30
Businessmen
Total=30
Govt. Employees
Total=30
Private Employees
Total=30
Mutual funds
2
2
1
3
Bank deposit
5
4
5
2
ULIPS
4
3
2
4
Recurring deposits
1
1
4
1
shares
3
5
3
5
The following pi-chart & graph shows that:
Bank Deposits are most preferred.
Recurring Deposit are least preferred.
---- By professionals
The following pi-chart & graph shows that:
Shares are most preferred.
Recurring Deposit are least preferred.
---- By Businessmen
The following pi-chart & graph shows that:
Bank Deposits are most preferred.
Mutual Funds are least preferred.
---- By Govt. Employees
The following pi-chart & graph shows that:
Shares are most preferred.
Recurring Deposit are least preferred.
---- By Private employes
Table 4: While selecting the policy, the most influence factor selected by different
segments:-----
Influence factors
Professionals
Total=30
Businessmen
Total=30
Govt. Employees
Total=30
Private Employees
Total=30
Tax benefit
25
0
28
2
Investment purpose
2
20
0
22
Future security
3
2
2
3
Other reason
0
8
0
2
The following pi-chart & graph shows that:
83.33% people invest to save tax.
6.67% people invest to get return.
10%people invest for future security.
The following pi-chart & graph shows that:
.
66.67% people invest to get return.
6.67%people invest for future security.
26.67%people invest for other reason.
The following pi-chart & graph shows that:
93.33% people invest to save tax.
6.67%people invest for future security.
The following pi-chart & graph shows that:
6.67% people invest to save tax.
73.33% people invest to get return.
10%people invest for future security.
6.67%people invest for other reason.
Table 5: awareness & investment in ULIP & MF: --------
Influence factors
Professionals
Total=30
Businessmen
Total=30
Govt. Employees
Total=30
Private Employees
Total=30
ULIPS MF
ULIPS MF
ULIPS MF
ULIPS MF
awareness
13 10
16 11
9 5
25 22
Investment
10 4
7 4
4 2
5 4
The following pi-charts & graph shows that:
Awareness towards ULIP & MF
43.33% professionals aware about ULIP.
33.33% professionals aware about MF
53.33% Businessmen aware about ULIP.
36.67% Businessmen aware about MF
30% Gvt. Employees aware about ULIP.
16.67% Gvt. Employees aware about MF
83.33% private Employees aware about ULIP.
73.33% private Employees aware about MF.
The following pi-charts & graph shows that:
33.33% professionals invest in ULIP.
13.33% professionals invest in MF
23.33% Businessmen invest in ULIP.
13.33% Businessmen invest in MF
13.33% Govt. Employees invest in ULIP.
6.67% Govt. Employees invest in MF
16.67% private Employees invest in ULIP.
13.33% private Employees invest in MF
CONCLUSIONS
On the basis of the results, the following conclusions can be drawn:
1. Most of the respondents were blind to their portfolio planning.
2. Investors of Udaipur are more risk averse as compared to metros.
3. Life Insurance is the most loved investment.
4. ULIPs form an attractive investment avenue and have a lot of potential
for growth. However the major hindrance observed has been the lack
of awareness regarding the same.
5. Most of the respondents have not even heard about Mutual Funds.
6. Some respondents know about ULIP & Mutual Funds but not educated
enough to invest in.
7. Even in other segments, its largely due to lack of adequate information
and resulting confidence in the product, conventional instruments are
being preferred.
8. Very few respondents have invested in Mutual Funds.
9. There is very less awareness of Mutual Funds in the segments of
Businessmen & Govt. employees .thus there is huge potential in those
segments.
10. Aggressive marketing and mass awareness programmes need to be
conducted to realize the actual potential of this product.
SUGGESTIONS/RECOMMENDATIONS
On the basis of the data analysis & the results obtained, the following suggestions can
be given to the bank & AMCs.
1. The bank & AMCs should emphasize on educating the people about new
investment avenue like ULIPs & specially Mutual Funds because the
awareness is less enough.
2. Awareness camps should be organized on a periodic basis.
3. Company should emphasize on market survey so as to design the product as
the customer desires.
4. AMCs should organize advertising campaigns to attract the investors towards
the funds & schemes.
5. Since most of the respondents have desired to avail the “safety” & “Returns”
from their investments therefore AMCs need to emphasize the feature of
diversified portfolio & the equity returns.
LIMITATIONS OF THE STUDY
Every research has its own limitations & the present research work is no exception to
this general rule. The inherent limitations of the study are as under:
1) Interview method, which was followed in the present report work, is relatively
more time consuming. In addition to this it is very expensive method, especially
when spreaded geographical sample is taken.
2) Questionnaire method, can be used only when respondents are literate &
cooperative.
3) Non-response by some of the respondents.
4) Since the population is not homogeneous some biasness might have creeped in.
5) There was a certain degree of misinterpretation or mislead by the respondents
about the points raised in the interview.
BIBLIOGRAPHY
Websites referred:
1. www.njindiainvest.com
2. www.amfiindia.com
3. www.mutualfunds.com
4. www.inglife.com
5. www.timesofmoney.com
Books referred:
1. Marketing Research: Naresh K. Malhotra
2. Financial Management: I.M. Pandey
Magazines/Journals referred:
1. Business Today
2. The Times of India
3. Economic Times
