ulips project

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INTRODUCTION TO TOPIC

The insurance plays a major role in the life of the humanity. Slowly people stared to realize

the necessity of the insurance and these needs are unending as long as life exists.

In fact insurance is not restricted for any category neither of the society nor in term of cast,

ages or life styles. Also many people have a notion that Insurance is very good form of an

investment, which is not right.

Insurance is just creating a protection for you and your family.

As Indian investors are now more exposed to the capital markets and have started

understanding its working, they want to multiply their money rapidly.

This can be done through Unit Linked Insurance Plans (market linked Plans) introduced

by the Insurance Players.

Therefore the only reasons for selecting this topic are

To get more knowledge about insurance sector in India

To undergo a comprehensive study of ULIPs.

To get experience of corporate scenario.

This project is about studying the insurance industry which is on the boom.

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The introductory part contains the meaning of insurance, its evolution, some, Statistics of Indian

insurance Industry.

The project deals the comprehensive analysis of the ULIP schemes, what is ULIP all about, its

NAV performance, the Growth, performance of the policies since their inception, its working, its

popularity and a market survey.

The project contains various graphs, tables and questionnaire to further.

Elaborate on the explanations.

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2.1 INDUSTRY PROFILE

Insurance business has emerged as one of the prominent financial services during recent times,

particularly in developing countries where it could not grow before globalization. But it is very

difficult to trace exactly when insurance originated.

If we go back to ancient times, we realize that the first insurers of life were the marine insurance

underwriters. They used to issue life insurance policies on the lives of their master and the crew

of the ship and the merchants. These policies were issued only for short periods. The first life

insurance policy was issued on 18th June 1583 on the life of William Gibbons, for a period of 1

year.

People always felt the need to have security of their lives and the property they owned.

Somewhere in 18th century, societies like the Amicable Society, Equitable Life Assurance

Society, Hand in Hand Society etc. were formed for issuing life insurance policies. During the

early 19th century, a large number of life insurance companies were formed in India as well,

which eventually became part of todays Life Insurance Corporation of India.

As far as the evolution of non-life insurance is concerned, it all began with the boycott of British

goods and the British administration. These nationalists movements made Indians come together

for the common cause of protection of life and goods. This was the time when the swadeshi

movement began. Thus over the years it forced the Government to have its own autonomous

bodies like LIC and GIC taking care of the life and the general insurance in India.

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Insurance today is not restricted just to life alone. But it has become the trend or the need of the

hour to insure each and everything one has. So the different areas wherein insurance business can

be done are - Life insurance, Health insurance, Automobile insurance, Property insurance,

Casualty insurance, Liability insurance, Title insurance, Credit insurance, Terrorism insurance,

Political risk insurance.

Insurance in India

Life insurance in its current form came to India from the United Kingdom with the establishment

of the Oriental Life Insurance Company in 1818. Thereafter Bombay Life Assurance Company

was formed in 1823, the Madras Equitable Life Insurance Society in 1829 and the Oriental Life

Assurance Company in 1874.

The Government felt the need to regularize life insurance and for the first time an Act pertaining

to insurance was passed viz. The Indian Life Assurance Companies Act 1923; later, in 1928 the

Indian Insurance Companies Act was enacted by the government to collect statistical data on life

and non-life business in India.

In order to protect the interests of policyholders, earlier legislation was consolidated and

amended by the Insurance Act 1938 with comprehensive provisions for detailed and effective

control over the activities of insurers.

Earlier life insurance was confined mainly to the cities and better-off segments of society. With a

view to spread life insurance to the rural areas, to have control over all the insurance providers in

India and to bring them under one roof the Government of India decided to nationalize the life

insurance business. Thus in 1956, the President of India passed an ordinance for nationalization,

thereby giving birth to the Life Insurance Corporation of India.

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Since 1956, with the nationalization of insurance industry, the state run Life insurance

corporation of India (LIC) has had a monopoly in Indias life insurance sector. Over the years, it

has reaped the advantages of monopoly and enjoyed a virtual prerogative in setting premiums.

With more than 6 lakh agents in every nook and corner of the country, it has created a brand

name for itself. It has, to its credit, around $44 billion as its life fund and is a strong player in the

financial sector. Over the years the government felt that the Life Insurance Corporation of India

was losing its grip, and decided it was time to let private players enter the market.

Present Scenario

The liberalization, privatization and globalization policies of the nation along with the revolution

in the field of Information Technology and communication have been advantageous for the

insurance sector in India.

Entry of private players and foreign collaborations: It was on the recommendation of the

Malhotra Committee that private players were allowed to enter into the insurance market. Today

there are almost 22 players who have entered the Indian insurance market besides the giant Life

Insurance Corporation of India (LIC).

Another major development that has taken in the field of general insurance is the de-linking of

the 4 subsidiaries of the General Insurance Corporation of India (viz. Oriental Insurance

Company Ltd., New India Assurance Company Ltd., National Insurance Company Ltd. and

United India Insurance Company Ltd) from the parent company.

Marketing strategies and approaches: The entry of private players and their foreign partners has

given domestic players a tough time, because the opening up of the sector has not brought in

only foreign players, but also professional techniques and technologies. The present scene in

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India is such that everyone is trying to put in the best efforts. One can see strategies being more

for survival than growth. But the most important gift of privatization is the introduction of

customer-oriented services. Utmost care is being taken to maximize customer satisfaction.

Insurance Sector Today: Opportunities and Challenges

Opportunities

As compared to the Western countries, where they have already reached a stage of saturation,

India can exploit some golden opportunities in the following fields.

1. Mass Marketing

India is a highly populated country and would continue to be so in the near future. New players

may tend to favour the "creamy" layer of the urban population. But, in doing so, they may well

miss a large chunk of the insurable population. A strong case in point is the current business

composition of the dominant market leader - the Life Insurance Corporation of India. The lion's

share of its new business comes from the rural and semi-rural markets. In a country of 1 billion

people, mass marketing is always a profitable and cost-effective option for gaining market share.

The rural sector is a perfect case for mass marketing.

Competition in rural areas tends to be "kinder and gentler" than that in urban areas, which can

easily be termed cutthroat. Identifying the right agents to harness the full potential of the vibrant

and dynamic rural markets will be imperative. Rural insurance should be looked upon as an

opportunity and not an obligation. A smaller bundle of innovative products in sync with rural

needs and perceptions, and an efficient delivery system are the two aspects that have to be

developed in order to penetrate the rural markets.

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2. Job Opportunities

Job opportunities are likely to increase manifold. The liberalization of the insurance sector

promises several new job opportunities for those who are equipped with degrees in finance.

Finance professionals who had witnessed a slump in the job market would be much relieved.

There will be demand for marketing specialists, finance experts and human resource

professionals. Apart from this, there will be high demand for professionals in streams like

underwriting and claims management, and actuarial sciences.

3. Inflow of Funds

There could be a huge inflow of funds into the country. Given the industry's huge requirement of

start-up capital, the initial years after opening up are bound to see a strong inflow of foreign

capital. A rise in the equity share of foreign partners to 49 percent will act as a boost to them.

4. Reinsurance

Huge capacity is likely to be created in the area of reinsurance. Apart from pure reinsurance

activities, which involves providing insurance protection, there will be a revolution in service-

related fields like training, seminars, workshops, know-how transfer regarding risk assessment

and rating, risk inspections, risk management and devising new policy covers, etc.

5. Marketing Strategies

Also, with more players in the market, there will be significant increase in advertising, brand

building, and this will benefit whole lot of ancillary industries.

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A substantial shift is likely to take place in the distribution of insurance in India. Many of these

changes will echo international trends. Worldwide, insurance products move along a continuum

from pure service products to pure commodity products. Initially, insurance is seen as a complex

product with a high advice and service component. Buyers prefer a face-to-face interaction and

place a high premium on brand names and reliability.

As products become simpler and awareness increases, they become off-the-shelf, commodity

products. Sellers move to remote channels such as the telephone or direct mail. Various

intermediaries, not necessarily insurance companies, sell insurance. In some countries like

Netherlands and Japan, insurance is marketed using the Post Office's distribution channels. At

this point, buyers look for low price. Brand loyalty could shift from the insurer to the seller.

6. Bancassurance

In other markets, notably Europe, this has resulted in bank assurance: banks entering the

insurance business. The Netherlands led with financial services firms providing an entire range

of products including bank accounts, motor, home and life insurance, and pensions. Other

European markets have followed suit. In France, over half of all life insurance sales are made

through banks. In the UK, almost 95% of banks and building societies are distributing insurance

products today.

In India too, banks hope to maximize expensive existing networks by selling a range of products.

Many bankers have shown an inclination to enter the insurance market by leveraging their

strengths in the areas of brand image, distribution network, face to face contact with the clients

and telemarketing coupled with advanced information technology systems. Insurers in India

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should also explore distribution through non-financial organizations. For example, insurance for

consumer items such as refrigerators can be offered at the point of sale.

7. Information Technology

Worldwide interest in E-commerce and India's predominant position in Information Technology

and software development are also likely to be major factors in the marketing of insurance

products in the immediate future. The number of Internet account is increasing and the trend has

already been set by some of the leading insurers and insurance brokers worldwide.

Challenges

If one has opportunities, one has to face challenges; it is like two sides of the same coin. No

doubt India has a lot of opportunities coming her way, but there are a few challenges and threats

as well.

The four main challenges facing the industry are product innovation, distribution, customer

service, and investments. Unit-linked personal insurance products might find greater

acceptability with rising customer awareness about customized, personalized and flexible

products. Flexible products and new technology will play a crucial role in reducing the cost and,

therefore, the price of insurance products. Finding niche markets, having the right product mix

through add-on benefits and riders, effective branding of products and services and product

differentiation will be some of the challenges faced by new companies.

1. Technology

In today's highly competitive financial services environment, effective organizations will employ

technology in a strategic way so to achieve a competitive edge. Technology will play an

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increasing role in aiding design and administering of products, as well in efforts to build life-long

customer relationships. At the same time, investment in technology will only help as long as

firms find the right people: people with the right attitude, values, and ethics, commitment to

excellence, and focus on customer service. The critical success factor is a top-down emphasis on

exceeding customer expectations with quality people, excellent products, and legendary service.

As has been seen in other financial services, the entry of private players ensures that the

customer will be the beneficiary in the long run. It will also result in enlarging the market and

extending the reach of insurance across the country.

2. Competition

Thus, apart from the normal issues facing any new company, many new Indian private insurance

players will need to cope with the challenges of working with a joint venture partner. They will

be competing with large and well-entrenched government-owned players. They have to

overcome regulatory hurdles, change the attitude of new recruits and satisfy some very high

customer expectations. Also, the players will have to consider the Indian market as a long-term

investment, and maintain clear-cut objectives and constant monitoring at all levels.

2.2 COMPANY PROFILE

Shriram Life Insurance Company is the joint venture between the Shriram Group and the Sanlam

Group.

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The Shriram Group is one of the largest and well-respected financial services conglomerates in

India. The Group's main line of activities in financial services include chit fund, truck financing,

consumer durable financing, stock broking, insurance broking and life insurance.

The Group has a customer base of 30 lacs chit subscribers and investors and operates through a

network of 630 offices all over the country. The Group has the largest agency force in the private

sector consisting of more than 75,000 loyal and dedicated agents.

Sanlam Life Insurance Limited, a part of the Sanlam Group, is one of the largest providers of life

insurance in South Africa with 3.2 million individual policies under administration. It has a

significant presence across South Africa, United Kingdom and Namibia and is a major provider

of life insurance, retirement annuities, saving and investment products, personal loans, home

loans and trust services to individuals. The shareholder's funds of Sanlam Life equates to USD

4.4 billion.

The Sanlam Group was established in 1918 and has a leadership position in financial services in

South Africa. Demutualized in 1998, the group is listed on the JSE Securities Exchange in

Johannesburg and on the Namibian Stock Exchange. It has a current market capitalization of

USD 5.4 billion. The Sanlam Group also operates in the areas of group schemes, retirement

funds, short-term insurance, asset management and other financial services. It has an employee

strength of 8,000 and has shareholder funds in excess of USD 4.6 billion. On 31st December

2004 it had more than USD 48 billion assets under management.

Vision:

The Shriram Life Insurance Company is set out with the objective of reaching out to the common

man with a host of products and services that would be helpful to him in his path to prosperity.

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Efficiency in operations, integrity and a strong focus on catering to the needs of the common

man, by offering him high quality and cost-effective products and services, are the values driving

the organization. These core values are deep-rooted within the organization and have been

strongly adhered to over the decades.

The company prides itself on its perfect understanding of the customer. Each product or service

is tailor-made to perfectly suit the needs of the customer. It is this guiding philosophy of putting

people first that has brought the Company closer to the grassroots and has made it the preferred

choice for all the truck financing requirements amongst the customers.

Milestones:

Year

1974 Commencement of Business - Shriram Chits

1979 Commencement of Business - Shriram Transport Finance Co (STFC)

1982 Commencement of Business - Shriram Investments Ltd

1984 IPO of STFC

1986 Commencement of Business - Shriram City Union Finance Co (SCUF)

1988 IPO of SCUF

1989 Commencement of Business - Shriram Overseas Finance Ltd

1995 Commencement of Business- Shriram Properties Pvt Ltd

1999 Commencement of Business - Shriram Insight Share Brokers Ltd

1999 Citicorp CV financing tie up with STFC

2000 Commencement of Business - Shriram EPC Ltd

2000 Commencement of Business - TAKE Solutions Ltd

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2004 Commencement of Business - Shriram Capital Ltd

2005 Entry of Chryscapital as Partner with STFC & EPC2005 Entry of Sanlam as Life Insurance

business partner and commencement of

business- Shriram Life Insurance Co

2006 Merger of Shriram Investments Ltd & Shriram Overseas Finance Ltd with STFC

2006 Commencement of Business - Shriram Fortune Solutions Ltd

2006 Commencement of Business - Shriram Value Services

2006 Entry of TPG as STFC's partner

2007 Shriram EPC's JV with Leitner Technologies for Manufacture of wind turbines

2007 EPC's foray into Air Pollution Control with Hamon through JV

2007 Orient Green Power was founded by Shriram EPC

2007 IPO of TAKE Solutions Ltd

2008 Commencement of Business - Shriram General Insurance Ltd

2008 IPO of Shriram EPC Ltd

2009 NCD Placement of Rs 10 Bn by STFC

2010 IPO of Orient Green power

2011 Leap frog invests in Shriram Credit Company Ltd

2.3 INTRODUCTION TO INSURANCE

Today, only one business, which affects all walks of life, is insurance business. Thats why

insurance industry occupies a very important place among financial services operative in the

world. Owing to growing complexity of life, trade and commerce, individuals as well as business

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firms are turning to insurance to manage various risks. Therefore a proper knowledge of what

insurance is and what purpose does it serve to individual or an organization is therefore

necessary.

The future is never certain.

So its rightly said, AN INSURANCE POLICY IN HAND KEEPS THE TENSION AWAY.

Insurance, essentially, is an arrangement where the losses experienced by a few are extended

over several who are exposed to similar risks. Insurance is a protection against financial losses

arising on the happening of an unexpected event. Insurance companies collect premium to

provide security for the purpose. In simple words it is spreading of risks amongst many people.

i) LIFE INSURANCE: It is a fundamental part of a sound financial plan which helps to insure

your loved ones

Life insurance the only instrument that takes care of

These 3 probabilities and 2 priorities.

Priorities = Childrens education and marriage

Probabilities = Dying too soon, Living death and Living too long

ii) BENEFITS :

1) SAVINGS

For unforeseen circumstances.

2)EDUCATION

For childs education and for higher studies.

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3) RETIREMENT

Facilitates adequate savings for worry free retired life.

iii) INSURANCE ------------a Flash back:

The earliest transaction of insurance as practiced today can be traced back to the 14th century

AD. The business of insurance started with marine business by Traders who used to gather in the

Lloyds coffee house in London, wherein they had agreed to insure their ships in transit.

The 1st Life Insurance Policy was issued on 18th June, 1583, on the life of William Gibbons for

a period of 12 months.

Life Insurance in its current form came in India from the UK, with the

Establishment of British firm, Oriental Life insurance Company, in 1818

The 1st Indian insurance company was the Bombay Mutual Assurance Society Ltd, formed in

1870.

By the year 1956, when the life insurance business was nationalized and the Life Insurance

Corporation Of India ltd (LIC) was formed on 1st September, 1956 and there were 245

companies existing at that time in India.

By 31.3.2002, eleven new insurers had been registered and had begun to transact Life insurance

business in India.

iv) INSURANCE CLASSIFICATION

Life

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Term

Endowment

Unit-linked

Money-back

v) INSURANCE INDUSTRY POTENTIAL

1) India is developing nation where still 20% of population are covered under various life

insurance policies as on 2011.

2)The Life Insurance Industry has grown by 36% p.a. from last five consecutive years, with a

premium business of Rs 1.29 lakh crores in FY 2010-2011 over Rs1.09 lakh crores in FY 2009-

2010.

Source IRDA Journal (April 2010

3) Global Life Insurance Market: $1,521 billion, Global Non-Life Insurance Market: $922

billion

4) India is 11th largest in insurance business with 2.7 % world market share as on 2011.

Times of India.

5) Out of one billion people in India, only 35 million people are covered by insurance.

6) Indias life insurance premium as a percentage of GDP is just 2.5% as on 2011.

7) Indian insurance market is set to touch $350- $400 billion by 2020, with assumption of 8% of

GDP.

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Growth Rate of Insurance sectorin India

Private Sector insurance company has shown a decline percentage from 40% in 2008-2009 to

20% up to May 2011.Private companies also showing negative growth rate in range of 20-50%,

as people are showing faith in government sector insurance companies.

LIFE INSURANCE COMPANIES IN INDIA

1. Life Insurance Corporation of India

PRIVATE PLAYERS

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2. Shriram Group

3. Tata AIG Life Insurance Company Ltd

4. Birla Sun Life Insurance

5. ICICI Prudential Life Insurance

6. Aviva Life Insurance

7. Bajaj Allianz

8. Max New York Life Insurance

9. Bharti Axa Life Insurance

10. SBI Life Insurance

11. Reliance Life Insurance

12. ING Vysya Life Insurance

13. Sahara India Life Insurance

14. HDFC Standard Life Insurance

2.4 RESEARCH METHODOLOGY

Research design descriptive

Data sources- primary data and secondary data

Research approach face to face interview, observation, individual depth interview

Research instrument questionnaire.

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Data Collection:

Primary Data:

1) Use of a Questionnaire for carrying out a survey

2) Presentation given by the Advisors of Tata AIG life.

3) Data explaining the working of the ULIPs.

Secondary Data:

1) Books

2) Newspapers

3) Magazines

4) Newsletter

5) Internet

6) Television

7) Booklet

8) Policy Brochures

REVIEW OF LITERATURE

It is not surprising that insurance industry is highly regulated and monitored because in society

insurance serves as essential purpose. In state insurance companies perform a various activities

to make sure that insurance consumers have access to insurance and treated fairly by insurer and

their agents, and that insurance companies are financially practicable (McCarran Ferguson Act

1945). Historically the forms of insurance regulations include laws related to the formation,

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operations of insurer, and terms of insurance contract and licensing. These laws also include

surplus and minimum capital requirements restrictions on the investment on statutory reserves

and prescribed methods for calculation of reserves (Mayers and Smith, 1988).

During 1980 the profitability of insurance companies varied across different a legal and

regulatory measure that reveals that these environments were supposed to protect the insurance

contract that may have had reverse effect if they created a significant constrained on the

activities of the insurance companies (Born H. P., 2001). Agiobenebo and Ezirim examined the

relationship between profitability and financial intermediation in Nigeria. Results showed that

the level of premium to total assets is positively related to level of profitability of insurance

companies and also significant. The factors of net potential, loan levels, investments were found

positively related but insignificant (Agiobenebo & Ezirim, 2002).

There are many ways to measure profitability, which are return on invested capital (ROIC),

return on equity (ROE) and return on assets (ROA) (Nguyen 2006). Life insurance companies

used unique accounting system due to which profitability of the industry has always been

difficult to measure as compared to other financial institutions. Profitability is affected by factors

including the scale of policy holders dividend, capital gain or losses and federal/state taxes for

insurer (Wright 1992).

Kashish & Kashram (1998) conducted study on Jordans` insurance industry and used

profitability as dependent variable, where profitability was proxied by return on investment(ROI)

by using this equation ROA= net profits/total assets.

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Study of Vigaykumar and Kadirvelu (2004), age of firm is an important determinant of

profitability. Older the firm the more will be the profitability due to experience and efficiency

cost decreases. They found the positive relationship between firms` profitability and age of the

firm.

Bates, Murray, Jagger and Cowling (2008) found that both age and size of the firm had positive

and significant effect for enterprise investment scheme recipients: the highest the level of fixed

assets formation, the older and larger the EIS company. Hutchison and Cox (2006) examined the

relationship between financial leverage and return on equity for US banking industry. They

found the negative relationship between bank capital and profitability except for the best

performing banks.

Harrington (2005) examined that the relationship between leverage and profitability has been

studied extensively to support the theories of capital structure. Panayotis, Delis & Athanasoglou

(2008) argued Academic Research International that banks with lower leverage will generally

report higher ROA, but lower ROE. Since an analysis for ROE pay no attention to the risk

associated with high leverage and financial leverage is often determined by regulation, ROA

emerges as the key ratio for the evaluation of profitability.According to Yang, Lianga &

Desheng (2008) the most common ratios used to evaluate operating performance are the loss

ratios and the expense ratios. NYS insurance department simplified the definition of loss ratio as

the percentage of total premium dollars which paid for claims on a particular type of long-term

coverage. A study conducted in Thailand found that for non-life insurance important factors that

affect ROA are size of capital fund, loss ratio and market power. Great market power does not

increase profitability ( Financial Service Liberalization, Final Report February 28, 2006)

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2.5 ROLE OF IRDA IN INSURANCE INSUSTRY

IRDA is Insurance Regulatory Development Authority, that has been set up to protect the

interests of the policy holders, to regulate, promote and ensure orderly growth of

the insurance industry and for matters connected therewith or incidental there to.

Role of IRDA in insurance sector

To protect the interest and secure fair treatment to policyholders.

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To bring about (speedy) and orderly growth ofthe insurance industry (including annuity

and superannuation payments), for the benefit of the common man, and to provide long

term funds for accelerating growth ofthe economy.

To set promote, monitor and enforce high standards of integrity, financial soundness,

fair dealing and competence of those it regulates.

To ensure that insurance customers receive precise, clear and correct information about

products and services and make them aware of their duties and responsibilities in this

regard.

To ensure speedy settlement of genuine claims , to prevent insurance frauds and other

malpractices and put in place effective grievances redressal machinery.

To promote fairness, transparency and orderly conduct in financial markets dealing with

insurance and build a reliable management information system to enforce high standards

of financial soundness amongst market players.

To take action where such standards are inadequate or ineffective enforced.

To bring about optimum amount of self regulation in day to day working of the industry

consistent with the requirements of prudential regulation.

Functions of IRDA

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.

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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 the Act.

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.

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Specifying the percentage of premium income of the insurer to finance schemes for

promoting and regulating professional organizations.

Specifying the percentage of life insurance business and general insurance business to be

undertaken by the insurer in the rural or social sector.

Exercising such other powers as may be prescribed.

3. Unit Linked Insurance Plans

3.1 About ULIPs

INTRODUCTION

ULIPS also known as UNBUNBLED VARIABLE INSURANCE PLANS has possibly been the

single largest innovation in the field of life insurance in the past several decades. It wasnt too

long back, when the good old endowment plan was the preferred way to insure oneself against an

eventuality and to set aside some savings to meet ones financial objectives. Then insurance was

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thrown open to the private sector. The result was the launch of a wide variety of insurance plans,

including the ULIPs.

Two factors were responsible for the advent of ULIPs on the domestic insurance horizon.

First was the arrival of private insurance companies on the domestic scene. ULIPs were one of

the most significant innovations introduced by private insurers. The other factor that saw

investors take to ULIPs was the decline of assured return endowment plans.

These were the two factors most instrumental in marking the arrival of ULIPs, but anotherfactor

that has helped their cause is a booming stock market. While this now appears as one of the

primary reasons for their popularity, it is believed that ULIPs have some fundamental positives

like enhanced flexibility and merging of investment and insurance in a single entity that have

really endeared them to individuals. ULIPs came to play in the 1960s and became very popular

in Western Europe and Americas.

MEANING OF ULIPS

A policy, which 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).

In order to offset the erosion of money, ULIPS are introduced. The Sum Assured is expressed in

units whose price is linked to an inflation related index.

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In todays times, ULIP provides solutions for insurance planning, financial needs, financial

planning for childrens future and retirement planning.Features of ULIPs distinguish itself

through the multiple benefits that it provides to the customer which are as follows

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 benefits.

Today many individuals are adding ULIPs to their portfolios to generate wealth and protection

over a long time.

ULIPS VERSUS ENDOWMENT

The following points help us to get a better idea how ULIPs differ from Traditional (Endowment

Plans)

1) SUM ASSURED

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This is the most fundamental difference between ULIPs and the traditional plans.

In case of endowment the agent will ask you HOW MUCH INSURANCE COVER DO YOU

NEED?& the premium is calculated as per the estimated sum assured.

In case of ULIPs you are asked HOW MUCH PREMIUM CAN YOU PAY? & accordingly

the Sum Assured is estimated.

2) INVESTMENTS

Endowment plans investment in:

Government Securities

Corporate bonds

Money market instruments

(No investment in the stock market)

ULIPs invest in

Equities

Bonds

G-secs

Money market.

3) FLEXIBILITY

In case of ULIPs the investor can choose the fund in which he wants to

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Allocate his portfolio. He can go for pure Equity, or a combination of debt equity, depending on

his requirements.

The investor also has the option of switching from one fund to another.

Usually Free switches are given during the year. This option is not available in case of

Endowment.

4) TOP UP FACILITY

A top up is a one time additional investment in the ULIP over and above the annual premium.

This feature works well when you have a surplus that you are looking to invest in a market

linked avenue, rather than keeping in an FD or Savings account.

This feature is not for Endowment.

5) TRANSPARENCY

ULIPs are more transparent than Endowment Plans as their NAV is declared EVERYDAY. As a

result you can know how your ULIP has performed.

In case of Endowment, the insurance company sends you an annual statement of bonus declared

during the YEAR. , which gives us an idea how our plan is performing.

6)LIQUIDITY

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Since ULIPs investments are NAV based it is possible to withdraw a portion of your investments

before maturity (after 3yrs lock in period is over).The withdrawal is possible provided the

minimum fund value is maintained.

In case of Endowment, you can only surrender your policy, but you wont get everything that you

have earned on your policy in terms of premium and bonus. The Surrender Value is much less

than the Sum Assured and the Bonus is also not paid.

THUS investing in ULIPs or in ENDOWMENT depends on the persons RISK taking ability. A

Risk Averse person may go for an Endowment, whereas a person who wants his corpus to

appreciate and is ready to take risks can go for ULIPs.

Therefore we can say that investing in ULIPs is the best in a growing Economy as compared to

the TRADITIONAL PLANS.

ULIPS AND YOU

IRDA has played a part in making ULIPs more investor friendly. Today more individuals are

opting for ULIPs to create wealth over a long term. Over here I have outlined how ULIPs can

help you to fulfill that responsibility.

1.4.1) If you are between 25 35 years of age

ULIPs help you to save for your childs education, marriage, planning for your retirement and

providing for your family in case of your absence.

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ULIPs Child plan ------------- --------for your childs education, marriage.

ULIPs Endowment plan------------- for helping you to meet investment objectives like buying a

house or setting up a business.

ULIPs Pension plan-------------------for your retirement. A long term retirement planning could

be done with an Equity push, as it is necessary to build up a strong corpus to face your rigorous

retirement.

1.4.2) If you are between 35 45 years of age

If you havent invested in ULIPs, it is not too late even now.

You can opt for some ULIPs as mentioned earlier. Remember ,unlike Endowment ,which gets

really expensive at an advanced age, ULIPs because of the way they are , do not turn out to be

expensive.

1.4.3) If you are above 45 years of age

In this age bracket, you have to review your insurance cover, taking into consideration the

changes of your life style, income needs, etc. By this time your ULIP pension plan must have

matured, so now you can opt for an Annuity (immediate or deferred) depending on your need.

IRDA and ULIPs

Unit Linked Insurance Plans were first started by Unit Truat of India, some 8 to 9 years back.

A unit-linked insurance plan (ULIP) is a type of life insurance where the cash value of a policy

varies according to the current net asset value of the underlying investment assets. It allows

protection and flexibility in investment, which are not present in other types oflife

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insurance such as whole life policies. The premium paid is used to purchase units in investment

assets chosen by the policyholder. Investments are made majorly in mutual funds and risk-free

instruments like government securities .

Unit Linked guidelines were notified by IRDA on 21st December 2005. The main intent of the

guidelines was to ensure that they lead to greater transparency and understanding of these

products among the insured, especially since the investment risk is borne by the policyholder. It

is the endeavor of IRDA to enable the buyer to make the most informed decision possible when

planning for financial security.

The Insurance Regulatory and Development Authority (IRDA) issued circulars on 28 June 2010

outlining fresh guidelines for ULIPs. According to the new norms, the investors who wish to

prematurely withdraw now have a reason to be happy as their investments would have some

protection. The IRDA capped charges from the sixth year. The charges would be applicable from

1 September 2010.

The circular specified certain clauses to be incorporated in all ULIPs to be sold from 1

September 2010. They are as follows-

Lock-in period for all ULIPs was changed from three years to five years, including top-

up premiums and no residuary payments on policies which are lapsed, surrendered or

discontinued would be made during this period.

Residuary payments for policies arising out of policies which are lapsed, surrendered or

discontinued during the lock-in period would be paid on the expiry of the lock-in period.

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Regular premium and limited premium ULIPs would have uniform and level paying

premiums and any additional payments made would be treated as single premium for the

purpose of insurance cover.

All limited premium ULIPs with the exception of single premium products will have a

premium paying term of at least 5 years.

All ULIPs, other than pension and annuity products, to provide a minimum mortality

cover or a health cover and the annual health cover at no time would be less than 10.5 %

of the total premiums paid.

All ULIPs pension or annuity products would offer a minimum guaranteed return of

4.5% per annum or as specified by IRDA from time to time.

IRDA on Unit Linked Insurance Plans Banned By SEBI

ULIP is saving-cum-investment product that offers the option of life cover along with market

liked returns. These products are increasingly gaining popularity among the investors on account

of its multi-purpose catering of life cover and equity market linked returns both. Additionally,

they also provide Tax savings, so they could very call All-in-One Policies.

However, SEBIs contention is that ULIPs are not pure insurance products and such products are

coupled with investment products which fall under its purview of regulation. The investment

component of the ULIPs, which ultimately finds its way into the equity markets, is in the nature

of mutual funds which falls under the jurisdiction of SEBIs governance.

SEBI has banned the following 14 Private Insurance companies form selling Unit Link

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Aegon Religare Life Insurance Company Limited

Aviva Life Insurance Company India Limited

Bajaj Allianz Life Insurance Company Limited

Bharti AXA Life Insurance Company Limited

Birla Sun Life Insurance Company Limited

HDFC Standard Life Insurance Company Limited

ICICI Prudential Life Insurance Company Limited

ING Vyasa Life Insurance Company Limited

Sriram Mahindra Old Mutual Life Insurance Limited

Max New York Life Insurance Co. Limited

Metlife India Insurance Company Limited

Reliance Life Insurance Company Limited

SBI Life Insurance Company Limited

TATA AIG Life Insurance Company Limited

CONTROVERSY RESULT

Government settles issue by issuing ordinance and it was settled in favour of IRDA as unit Link

Insurance Plans are basically life insurance products and provide nature of insurance with risk,

the premiums are invested in equity funds, balanced funds, debts funds etc.

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The government has brought down curtains on the two-month long tussle between two regulators

by ruling that Unit-linked Insurance Products (Ulips) will be governed by the Insurance

Regulatory and Development Authority (IRDA).

Ulips account for more than 50 per cent of the life insurance business in the country. The money

collected is invested in equities.An amendment favoring Irda over the Securities and Exchange

Board of India was signed by President Pratibha Patil on June 18.

The law ministry issued an ordinance amending the RBI Act 1934, Insurance Act 1938, SEBI

Act 1992 and Securities Contract Regulations Act 1956, clarifying that life insurance business

will include any unit-linked insurance policy or scripts or any such instruments. This has thus

settled the issue of regulating Ulips.

The two regulators have been warring over the jurisdiction over Ulips after Sebi on April 9

barred 14 life insurance companies from selling or renewing Ulips unless they registered with it.

A day later, IRDA struck back telling insurers to ignore the Sebi order on the grounds that the

capital markets regulator had no jurisdiction over insurance companies.

This resulted in the government intervention and the finance minister asked both the regulators to

file a joint application with an appropriate court to resolve the matter. However, SEBI issued a

clarification saying that insurance companies need to register with SEBI.

3.2 Difference between Mutual Funds and ULIPs

Mutual funds are essentially short to medium term products. The liquidity that these products

offer is valuable for investors.

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ULIPs, in contrast, are now positioned as long-term products and going ahead, there will be

separate playing fields for ULIPS and MFs, with the product differentiation between them

becoming more pronounced.

ULIPs now do not seek to replace mutual funds; they offer protection against the risk of dying

too early, and also help people save for retirement.

Insurance has to be an integral part of ones wealth management portfolio. ULIPs and mutual

funds are, therefore, not likely to cannibalize each other in the long run.

While ULIPs as an investment avenue is closest to mutual funds in terms of their functioning

and structure, the first and foremost purpose of insurance is and will always be protection. The

value that it provides cannot be downplayed or underestimated. As an instrument of protection,

insurance provides benefits that no investment can offer.

It is important for an investor to understand his financial goals and horizon of investment in

order to make an informed investment decision. The decision to invest in either a mutual fund or

a ULIP should depend on the time period of investment, individual financial goals as well as risk

taking appetite, and its about time the industry and customer realize it.

Points of Difference ULIPS(Unit Linked

Insurance Plans)

MFs(Mutual Funds)

1) Meaning :- These are the Insurance

policies which are linked to

units of Mutual Fund.

It is an investment

organization with a main

objective of collecting funds

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from various segments of

people and investing the same

in a variety of securities.

2) Primary Objective :- Its main objective is

investment & protection

Its objective is only

Investments.

3) Investment Duration:- It works out for long term

investment only.

It works out to medium term,

long term, & short term. Risky

for short term investors.

4)Insurance Cover :- ULIPs provide insurance

cover (except annuity

products which may be issued

with/ without risk cover) and

from the amount invested in

ULIPs after netting out the

risk premium for life risk

cover and administrative

expenses, the insurer invests

the balance as per the

objective of the

specific ULIP product

MF schemes do not cover the

life risk and the amount

invested, net of expenses, gets

invested as per the Investment

objective of the scheme.

5) Expenses :- Insurance companies have a

relatively free hand in levying

expenses on their ULIP

products with no upper limits

being prescribed by the

In MFs, expenses charged for

various activities like

sales/marketing,

administration and fund

management are capped (for

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regulator, the Insurance

Regulatory and Development

Authority (IRDA)

example in equity oriented

mutual funds, expenses are

capped at 2.5%. per annum) as

per the guidelines of the

Securities and Exchange Board

of India (SEBI). Similarly

funds usually charge their

investors entry (at the timing

of making an investment) and

exit (at the time of sale) loads.

6) Flexibility :- Flexibility is limited to

moving across different funds

offered with policy.

Correcting mistakes can turn

out to be expensive. Moving

funds from one ULIP to

another ULIP of a different

fund house can be expensive.

Very flexible. Plenty of scope

to correct mistakes if

Any wrong investment

decisions are made. Portfolios

can be easily shuffled in MFs.

7) Liquidity :- Limited liquidity .It need to

stay invested for minimum

years before redeeming.

Very liquid. MF units can be

sold any time(except ELSS).

8) Investment Objective:- ULIPs can be used for

achieving only long term

objectives (Children

education, marriage,

MFs can be used as vehicle for

investments to achieve

different objectives.(E.g.:

Buying a car three years from

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Retirement planning). now. Down payment 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).

9) Flexibility of

Switchovers :-

Insurance companies permit

their ULIP investors usually

3-4 switch overs free of

charge and thereafter every

additional switch over beyond

the permissible limit is

permitted at some cost.

In MFs an investor usually is

subjected to exit load

And/or entry load when he/she

exercises a switch over option.

10) Minimum Lock- in

Period

ULIPs currently are with a

minimum lock-in of three

years.

MF schemes (except ELSS

which has a lock-in of

three years) do not have any

such lock in.11) Investment styles

and Portfolio Disclosures :-

Insurance companies declare

their portfolios once in a

quarter and their investment

style are less aggressive and

Most MFs usually declare their

portfolios on monthly basis

and MFs are generally known

to be more active in fund

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they resort to less churning. management

12) Tax benefits and

implications :-

Irrespective of the nature of

the plan chosen by the

investor, all ULIP

investments qualify for

deductions up to one lakh

under Section 80C of the

Income Tax Act. In the case

of ULIPs the maturity

proceeds are tax-free.

In the case of mutual funds,

only investments in taxsaving

funds i.e Equity-linked savings

schemes (ELSS) are eligible

for Section 80C benefits.

On the other hand, in the case

of equity-oriented

mutual funds, if the

investments are held for a

period over 12 months, the

gains are tax free and if sold

within a 12-month period they

attract short-term capital gains

tax @ 10 percent.

Similarly, debt-oriented funds

attract long-term

capital gains tax @ 10 percent

while short-term

capital gain is taxed at the

investors marginal tax

rate.

3.3 Role of ULIPs in Current market

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The current market scenario is leaving a great impact and has changed many things in our lives.

During the last bear market, the impact of market weakness was limited to stock market and

hence the worst affected were those who took a bet on stocks. In the current edition of market

weakness, the numbers of affected by equity are many more, thanks to the popularity of unit-

linked plans.

Technically, insurance sector should have little to worry about as investors in the policy are

long term investors. However, due to the wrong selling strategy of investors and advisors,

insurance, in recent times, particularly the ULIPs, have been sold on the basis of shorter tenure.

In fact, many insurance companies even launched policies with shorter tenure of as little as 3

years on the premise that policyholders had shrunk their commitment towards their premiums.

While one could get away with shorter tenures during 2003-07, it may not be the case for the

coming year and hence, those who signed up for ULIPs may have to hold on to their policies for

more than three years. Besides staying invested, ULIP policyholders can also make a better use

of their investment through some changes in their investment strategies. Here are some tips for

managing your existing ULIPs:

Switch to monthly from annual: if you are an investor with long term focus for your insurance

policy, continue with your equity allocation. However, monthly mode for premium may work

better than annual premium mode as stock market has been volatile. In the case of monthly

premium, investor gets to enjoy the benefits of volatility like SIP (systematic investment plan).

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The good thing with ULIP is that there is plenty of flexibility with premium payment and investor

can change from one mode to another at any time.

Increase allocation for debt: ULIP, often, is associated with equity though in reality, every

insurance company offers at least 4-5 investment options for the premium. As a result, investors

who signed up for ULIP more than 4-5 years can look at the option of reducing equity exposure

for the next one year. The logic is simple. When these investors signed up for ULIP, the stock

market was closer to the present level or slightly lower than the current level. If you have made

some gains from your ULIP, protection of profits can be an option and hence reduce your equity

exposure. The ratio between equity and debt can be according to your comfort. Those with

medium risk appetite can look at 30-40% in favour of debt. If you can't decide for yourself, look

at the option of balanced funds which allocate up to 35-40% in favour of debt. You can revert to

100% equity once the stock market stabilises.

Now the question is should everyone review their ULIP premium strategy? The answer is yes if

you are not a long term investor. On the other hand, if ULIP is an option to build corpus for

your medium term needs or children's education with tenure of over 10 years, you need not

worry much about the market volatility. In fact, insurance companies themselves do value

picking with their funds as they don't have the pressures of redemptions when compared with

mutual funds. That is also the reason why insurance companies managed to post better returns

with their ULIPs during the market meltdown.

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Hence although in this current market situation it seems more preferable to go in for ULIP's and

those who have existing policies to review them.

4. Analysis of the study

Initially ULIPs were started by a few private players way back in 2001-02. But now almost every

Insurance company has got ULIPS suiting the varied requirements of the customers. If one has to

choose among the ULIP schemes provided by the insurance, it is necessary to do a through

comparison to choose the right one for you.

ULIPs, in contrast, are now positioned as long-term products and going ahead, there will be

separate playing fields for ULIPS and MFs, with the product differentiation between them

becoming more pronounced.

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ULIPs now do not seek to replace mutual funds, they offer protection against the risk of dying

too early, and also help people save for retirement. Insurance has to be an integral part of ones

wealth management portfolio. ULIPs and mutual funds are, therefore, not likely to cannibalize

each other in the long run.

While ULIPs as an investment avenue is closest to mutual funds in terms of their functioning and

structure, the first and foremost purpose of insurance is and will always be protection. The

value that it provides cannot be downplayed or underestimated. As an instrument of protection,

insurance provides benefits that no investment can offer.

It is important for an investor to understand his financial goals and horizon of investment in

order to make an informed investment decision. The decision to invest in either a mutual fund or

a ULIP should depend on the time period of investment, individual financial goals as well as risk

taking appetite, and its about time the industry and Customer realize it.

HOW ULIPS MANAGE MONEY

ULIPs are different from traditional plans.

They invest their monies in Shares, bonds, Government Securities, Money market instruments in

varied proportions.

Insurance companies usually maintain 4 types of funds.

Growth Fund 100 % Equity

Balanced Fund 60 % Equity and 40 % Debt

Debt Fund 100 % Debt

Money Market Fund 100 % money market instruments for period of

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one year

Risks

Returns

In case of equity, the risk and return is the highest, and vice verse for Money market instruments.

It is a principle of Financial management, the higher the risks you take , the higher the return you

get.

STEPS FOR ULIP SELECTION

Understand what ULIPs are all about.

Focus on your need and risk profile

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Money

Market

Debt

Balance

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Compare ULIP products from various insurance companies

Go for an experienced Insurance advisor

It is estimated that Indias economy will become the 3rd largest economy within a few years,

with a high GDP growth and a low inflation rate, followed by booming stock market (SENSEX

soaring as high as 20,000 points). So right time to increase your wealth and become rich starts

from today. And ULIPS are the best to invest in.

EXPENSES IN ULIPs

Following expenses have to be incurred for ULIPs:

a) Mortality charges: charged by the company to cover the risk of an eventuality to an

individual.

b) Administration Charges: charged by the company to cover the daily expenses, overhead

costs, agents commission etc.

c) Fund Management charges: are levied by Insurance companies to cover the expenses

incurred by them in managing ULIP monies. Charges are high for managing monies in an Equity

Fund.

d) ULIP Fund switch charges: Such are borne by the individuals when they decide to switch

their money form one type of find to another.

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e) Top up Charges: A certain % is deducted from the Top up amount to recover the expenses

incurred on managing the same.

Cancellation/ Surrender charges: It is charged when an individual wishes to surrender his ULIP

policy.

Study of some ULIPs plan of Sriram Finance

Sriram Classic Opportunity Fund

Fund Strategy: Aims to maximize opportunity for you through long-term capital growth, by

holding a significant portion in a diversified and flexible mix of large / medium sized company

equities.

Sriram Classic opportunity fund guarantees you an additional income every year, for 20 years

provided the policy is in force. In addition, on maturity you receive 110% to 104% of Basic Sum

Assured. You also enjoy life cover for the entire policy term thereby protecting your family

should something happen to you.

Advantages

Enjoy Assured Annual Income for 20 years

Receive lump sum on maturity

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Provide protection to your family for 30 years

Avail of policy loan to meet sudden expenses

Boost your protective cover through optional rider benefits

Key Features

Enjoy Assured Annual Income for 20 years

Maturity Benefit - Receive lump sum on maturity

Death Benefit - Provide protection to your family for 30 years

Avail of policy loan to meet sudden expenses

Boost your protective cover through optional rider benefits

Tax Benefits

As on 31st Aug 2012.

Performance Meter Sriram Classic

Opportunities Fund

Benchmark

Inception(16-09-11) 9.3% 3.9%

5 years n.a. n.a.

4 years n.a. n.a.

3 years n.a. n.a.

2 years n.a. n.a.

1 years 3.2% - 1.0 %

6 month 2.0 % - 0.8 %

3 month -1.2% -4.5%

1 month -1.3% -2.5%

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Equity % to Fund

Infosys Ltd 6.25%

I T C Ltd 5.39 %

ICICI Bank Ltd 5.14 %

Tata Consultancy Services Ltd 4.59 %

HDFC Bank Ltd 4.48 %

Larsen And Toubro Ltd 4.16 %

Reliance Industries Ltd 3.55 %

Housing Development Finance Corp. Ltd 2.64 %

Bharti Airtel Ltd 2.53 %

Oil & Natural Gas Corporation Ltd 2.48 %

Bharat Petroleum Corporation Ltd 2.05 %

IndusInd Bank Limited 2.00 %

Sun Pharmaceuticals Ltd 1.81 %

Coal India Ltd 1.71 %

Axis Bank Ltd 1.63 %

Mahindra & Mahindra Ltd 1.62 %

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National Thermal Power Corporation Ltd 1.60 %

Idea Cellular Ltd 1.54 %

Cummins India Ltd 1.37 %

Others 35.38 %

Total 93.90%

Sriram Dynamic Floor Fund

Fund Strategy: Aims to provide you with stable long-term inflation beating growth over medium

to long-term and defend your capital against short-term capital shocks.

Benchmark Details: Equity - 37.5% (Nifty); Debt - 62.5%

Sriram Platinum is a unit linked investment plan with low charges along with convenient

premium payment options. A great combination of 8 funds and loyalty additions, this plan helps

you build substantial wealth for yourself.

Advantages

Maximize your wealth through a plan with low charges

Capitalize on a wide array of funds to build a substantial corpus

Enhance your long term savings through loyalty additions

Enjoy liquidity through policy loans and partial withdrawals

How Does the Plan Work?

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You may decide your premium based on how much and for how long you wish to invest.

You choose the Basic Sum Assured, depending on your existing insurance cover and need. You

can further opt for rider benefits to enhance the protective cover of your plan

Premiums paid by you, net of premium allocation charges, are invested in the funds of your

choice.

Now you can sit back and relax. Our investment experts will ensure that your plan earns you

handsome returns.

Performance Meter Sriram Dynamic FloorFund Benchmark

Inception (17-Dec-09) 4.5% 5.3%

5 years n.a. n.a.

4 years n.a. n.a.

3 years n.a. n.a.

2 years n.a. n.a.

1 year 4.9% 4.1%

6 mth 1.1% 2.0%

3 mth -0.9% -0.7%

1 mth -0.7% -0.6%

Asset class Distribution

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Debt Portfolio % to Fund

7.80% GOI - 11.04.2021 1.86%

8.26% GOI - 02.08.27 1.84%

8.85% SBI Upper Tier II - 04.10.2021 Call

04.10.2016

1.78%

9.95% SBI 2026 - 16.03.2026 Call 16.03.2021 1.56%

2.00% Tata Motors - 31.03.2014 1.50%

8.45% EXIM Bank - 08.09.2015 1.48%

9.75% Tata Sons - 19.07.2016 1.45%

9.15% PNB - 16.04.2016 1.45%

9.60% HDFC - 07.04.2016 1.41%

8.48% LIC Housing Finance - 27.09.2013 1.41%

6.90% OIL SPL - 04.02.2026 1.39%

10.10% SBH Bank FD - 12.03.2014 1.29%

9.55% NABARD - 12.07.2014 P/C

12.07.2013

1.28%

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6.35% OMC GOI BOND - 23.12.2024 1.00%

IDBI Bank CD - 15.05.12 0.98%

9.40% NABARD - 19.07.16 0.96%

8.26% LIC Housing Finance - 08.07.2015 0.94%

Indian Overseas Bank CD - 05.03.2012 0.91%

9.85% REC - 28.09.17 0.89%

7.59% GOI 2016 0.87%

Current Asset/Liabilities 4.10%

Others 33.16%

Total 63.50%

Sriram Balanced Fund

Fund Strategy: Aims for moderate growth for you by holding a diversified mix of equities and

fixed interest instruments.

Benchmark Details: Equity - 60% (BSE 100); Debt - 40%.

Sriram Wealth Insurance is aunit-linked insurance plan , that provides you with investment

growth to take care of your family's goals and comprehensive protection to help your family and

you meet unplanned events head on.

Advantages

O Comprehensive triple benefit to secure your family's future

O Wide array of fund options to suit your investment needs

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O Liquidity to take care of contingencies

O Convenience of shorter payment term

O Optional rider benefits to boost protection

Key Features

O Maturity Benefit

O Death Benefit

O Rider Benefits for boosted protection

O Invest surplus capital as Top-Up Premiums

Performance Meter Sriram Balanced Fund Benchmark

Inception (21-Dec-09 7.0% 4.1%

5 years n.a. n.a.

4 years n.a. n.a.

3 years n.a. n.a.

2 years n.a. n.a.

1 year 3.4% 1.8%

6 mth 2.2% 0.7%

3 mth -0.6% -2.1%

1 mth -0.9% -1.3%

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Allocation By Sector in Equity

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Sriram Dynamic Growth Fund

Fund Strategy: Aims for a high level of capital growth by holding a significant portion in large

sized company equities.

Benchmark details: Equity - 80% (BSE 100); Debt - 20%

This plan would like to protect your family in the eventuality of you not being around yet receive

all your premiums back on maturity.

Advantages

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Affordable premiums

Hassle free premium payments

No medical examinations

Key Features

Return of premiums

Hassle-free

Death Benefit

Maturity Benefit

Performance Meter Sriram Dynamic Growth

Fund

Benchmark

Inception (27-Jun-03) 17.1% 15.8%

5 years 10.4% 9.6%

4 years 3.8% 4.7%

3 years 6.7% 7.4%

2 years 9.1% 6.1%

1 year 3.1% 0.7%

6 mth 0.9% -0.1%

3 mth -2.0% -3.3%

1 mth -2.1% -2.0%

Asset Class Distribution

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Debt Maturity Profile

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Sriram Money Market Fund

Fund Strategy: Aims to protect your capital and not have downside risks.

Benchmark details: Equity - 0% (NA); Debt - 100%.

The Sriram Money Market Fund offers the key benefit of cash lump sums at periodic intervals of

five years, ensuring that you are able to meet any of your financial obligations which arise from

time to time. This money back plan not only lets you enjoy regular cash flows during the policy

term, but it also gets you a substantial life cover, which increases every year.

Advantages

Guaranteed additions on maturity

Earn bonuses on the plan

Death benefit increasing at 7% of sum assured at the end of each year

Cash lump sums at intervals of 5 years

Key Features

Bonus

Maturity Benefit

Increasing Death Benefit

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Automatic Cover Maintenance

Performance Meter Sriram Money Market

Fund

Benchmark

Inception (5-Jan-10) 5.4% 6.2%

5 years n.a. n.a.

4 years n.a. n.a.

3 years n.a. n.a.

2 years n.a. n.a.

1 year 6.5% 7.3%

6 mth 3.7% 3.9%

3 mth 2.0% 1.9%

1 mth 0.7% 0.6%

Asset Class Distribution

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100 % money invested in Short term Debt market.

Debt Maturity Profile

4.2 Understanding working of ULIPs of Sriram Finance

ULIPs are said to be the most lucrative from of investment, which not only give you high market

returns but also protection from risk, and also secures the livelihood of your loved ones even

after your death.

Here is an illustration which explains how a ULIP makes your money work.

SAMPLE SALES ILLUSTRATION OF SRIRAM CLASS OPPURTUNITY FUND

(SRIRAM FINANCELTD).

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Name of the Proposed Insured: Mr. Dinesh Behera

Age of the proposed insured: 25 yrs

Name of the policy holder: Mr. Dinesh Behera

Age of the policyholder: 25 yrs

Proposal No: 1577

Date: 15/7/11

Currency: Rupees

Payment Mode: Annual

Insurance plan SRIRAM CLASS OPPURTUNITY FUND

Benefit period 30 years

Premium Paying period 30 years

Premium Multiple 33.33

Annual premium 15000

Modal premium 15000

Sum Assured (SA) 500000

Additional coverage 500000

Fund Equity 100 %

Note :

1)SA is the multiple of annual premium: 15000*33.33= 5,00,000

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2) Additional coverage given as Accident Death Benefit Rider taken by the policy holder.

3) Investment in Equity is 100%.

SRIRAM CLASS OPPURTUNITY FUND 30 Years Policy

Min Return on units=10%

CHARGES:

1st year= 50% of premium

2nd year= 25% of premium

3rd year= 1 %of premium

YEAR 1

15000 premium

50% 50%= Rs 7500

Return =Rs 750

Total =Rs 8250

NAV =RS 10

No. of units =Rs 8250/10=

825units

YEAR 2

15000 premium

25% 75% = Rs 11250

Return= Rs 1125

Total = Rs 12375

NAV=RS. 20

(12375+8250)=Rs20625

No. of units = Rs20625/ 20=

1031 units

YEAR 3

15000 premium

1% 99%= Rs 14850

Return= Rs 1485

Total = Rs 16335

NAV =RS 30

(16335+20625)=Rs 36960

No of units= Rs 36960/

30=1232 units

TOTAL UNITS IN HAND: 825+1031+1232=3088 UNITS AFTER 3 YEARS

Therefore the units keep on increasing with the change in the NAVs.

There is an inverse relation between the NAVs and the No. of Units.

63

Balance invested in the

Equityfund

50%

75%

99%


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As the NAVs rises the no of units decrease.

& As the NAVs fall, the No of Units increase.

E.g.: In the 3rd year, the investment was Rs 36960. NAV was Rs 30. So the no. of Units was

1234

Now if the NAV Falls to Rs 20. Then the no. of Units would have been 1848.

Therefore the rising trend of NAV is not always a good sign, as your

no of units decrease.

Therefore if Mr. Dinesh Behera continues with his policy for 30 years, He will get a Maturity

benefit = existing Fund Value which is the sum of the Regular premium fund value

On death = SA Rs 5,00,000 or NAV whichever is higher.

On Death due to Accident= Double the SA.

4.3 Market Survey on ULIPs

A questionnaire was prepared, wherein 10 advisors of Sriram Financewere asked to fill it. The

reason for carrying out a market survey was to know the opinion of the Advisors and the

popularity of ULIPs in the market.

Pay Back Period:

Sl.No Years

Income (Profit

After Tax)

Depreciati

on

Cash

Inflows

Cumulative Cash

In Flows

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1 2005-06 1493 474 1967 1967

2 2006-07 1316 474 1790 3757

3 2007-08 1457 527 1984 5741

4 2008-09 2645 874 3519 9260

5 2009-10 3022 919 3941 13201

6 2010-11 3100 924 4024 17225

7 2011-12 3331 685 4016 21241

8 2012-13 3519 507 4026 25267

9 2013-14 3553 513 4066 29333

10 2014-15 3619 518 4137 33470

11 2015-16 3686 524 4210 37680

12 2016-17 3755 529 4284 41964

13 2017-18 3839 535 4374 46338

14 2018-19 3931 540 4471 50809

15 2019-20 4030 546 4576 55385

$

(a) Cash Outlay : 8692

(b) Payback Period : INITIAL INVESTMENT

ANNUAL CASH FLOW

=

3 +

2951

3519

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= 3.10 years

Pay Back Period:

It is assumed that the profit earning of the project will start from 2008-09.

Taken consideration of (incremental adjusted cash flow) i.e. expansion

Base year, for calculation PAY BACK PERIOD.

Estimated profits are taken from the data provided.

For CIF we have deducted depreciation from profit &then

Cumulative profit.

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So the projected payback period is calculated as 3.10 years.

We should increase this period with same exception as there May be any additional factor and

other cause so rounding of 3.10 to 4 years will be right, so that it will give more assistance To the

calculation.

Average Rate of Return:

Years Income DepreciationCash Inflows (Before

depreciation)

1 2005-06 1967 474 1493

2 2006-07 1790 474 1316

3 2007-08 1984 527 1457

4 2008-09 3519 874 2645

5 2009-10 3941 919 3022

6 2010-11 4024 924 3100

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7 2011-12 4016 685 3331

8 2012-13 4026 507 3519

9 2013-14 4066 513 3553

10 2014-15 4137 518 3619

11 2015-16 4210 524 3686

12 2016-17 4284 529 3755

13 2017-18 4374 535 3839

14 2018-19 4471 540 3931

15 2019-20 4576 546 4030

A R R =Average profit

x 100Average investment

Average Profit=

Total cash inflows

No. of years

46296= 3086.4

15

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Average investment:

here the additional working capital is also taken the consideration while

calculating the ARR.

Average investment =investment

+ Ad. WC2

8692+ 702

2

= 5048

A R R =3086.4

x 1005048

= 61.14%

R O I =Average Annual profit

x 100Total initial investment

R O I =

3086.4

x 1008692

R O I = 35.51%

It is more calculation taking total profit and taking average of it. It

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Show the return on an average as what an average income of the firm on

Long run basis with certain assumption 61.14% for any firm at long run is

Good but there must be some decrease as future is not certain.

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NPV:

Sl.No Years

Cash

Inflows DCF(19%)

Present Values of

Inflows

1 2005-06 1967 0.840 1652.28

2 2006-07 1790 0.706 1263.74

3 2007-08 1984 0.593 1176.51

4 2008-09 3519 0.499 1755.98

5 2009-10 3941 0.419 1651.28

6 2010-11 4024 0.352 1416.45

7 2011-12 4016 0.296 1188.74

8 2012-13 4026 0.249 1002.47

9 2013-14 4066 0.209 849.79

10 2014-15 4137 0.176 728.11

11 2015-16 4210 0.148 623.08

12 2016-17 4284 0.124 531.22

13 2017-18 4374 0.104 454.90

14 2018-19 4471 0.088 393.45

15 2019-20 4576 0.074 338.62

Total Present Values of Inflows 15026.62

N P V = Total Present Value of Cash inflows Total Outlay

= 15026.62 8692

= Rs 6334.62

It is the factor of Re.1 calculation at the end of the year. It will be

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Value of Re.1 at the end of the year which is based interest rate, cost of

Capital and market state which is called as discounted rate to get an

Discounted rate to get an approximate decision.

It should be taken in every calculation of project so that an approximate. Decision can be

taken. As it is more reliable the simple cash inflows (profits).

Internal Rate of Return:

Discount rate taken as 18%

(in crores)

Sl.No Years Cash Inflows DCF(18%)

Present Values of

Inflows

1 2005-06 1967 0.847 1666.049

2 2006-07 1790 0.718 1285.220

3 2007-08 1984 0.609 1208.256

4 2008-09 3519 0.516 1815.804

5 2009-10 3941 0.437 1722.217

6 2010-11 4024 0.370 1488.880

7 2011-12 4016 0.314 1261.024

8 2012-13 4026 0.266 1070.916

9 2013-14 4066 0.225 914.850

10 2014-15 4137 0.191 790.167

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11 2015-16 4210 0.162 682.020

12 2016-17 4284 0.137 586.908

13 2017-18 4374 0.116 507.384

14 2018-19 4471 0.099 442.629

15 2019-20 4576 0.084 384.384


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Discount rate taken as 35%

(in crores)

SL.No Years

Cash

Inflows DCF(35%)

Present Values of

Inflows

1 2005-06 1967 0.741 1457.5

2 2006-07 1790 0.549 982.71

3 2007-08 1984 0.406 805.5

4 2008-09 3519 0.301 1059.2

5 2009-10 3941 0.223 878.84

6 2010-11 4024 0.165 663.96

7 2011-12 4016 0.122 489.95

8 2012-13 4026 0.091 366.37

9 2013-14 4066 0.067 272.42

10 2014-15 4137 0.050 206.85

11 2015-16 4210 0.037 155.77

12 2016-17 4284 0.027 115.67

13 2017-18 4374 0.020 87.48

14 2018-19 4471 0.015 67.065

15 2019-20 4576 0.011 50.336


I R R = L +

A - Cash out layX (H L)

A-B

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= 18 +

15826.708 - 8692X (35-18)

15826.708 7659.6921

= 18 + 7134.708 X 17

8167.016

= 18 + 0.874 X 17

= 32.85

In this calculation, is done on the basis of trail and errors. By taking

various percentage of (DCF).So that an appropriate percentage of Internal

Rate of Return can be judge out.

Calculated figure is 32.85%, so we can take it as 35% cause at market

Uncertainty.

Profitability Index Method:

Sl.No Years

Cash

Inflows DCF(19%) Present Values of Inflows

1 2005-06 1967 0.840 1652.28

2 2006-07 1790 0.706 1263.74

3 2007-08 1984 0.593 1176.51

4 2008-09 3519 0.499 1755.98

5 2009-10 3941 0.419 1651.28

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6 2010-11 4024 0.352 1416.45

7 2011-12 4016 0.296 1188.74

8 2012-13 4026 0.249 1002.47

9 2013-14 4066 0.209 849.79

10 2014-15 4137 0.176 728.11

11 2015-16 4210 0.148 623.08

12 2016-17 4284 0.124 531.22

13 2017-18 4374 0.104 454.90

14 2018-19 4471 0.088 393.45

15 2019-20 4576 0.074 338.62


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P. I = Cash Inflows

Cash Outflows

=15026.62

8692

= 1.73


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In calculation of P.I. simple income is taken in to consideration thats why

P.I =1.73.

But it is not correct as per practical study. So discounted rate will help to get

A good path to get an approximate P.I and it will be more reliable than old

Traditional approach.

4.4 Integrated Financial Planning for Life Insurance

Your Need

Starting a Job, Single individual Low protection, high asset creation and

accumulation.

Recently married, no kids Reasonable protection, still high on

Asset creation.

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Married, with kids Higher protection, still high on asset creation

but steadier options, increase Savings for

child.

Kids going to school, college Higher Protection, high on asset Creation but

steadier options, liquidity for education

expenses.

Higher studies for child, marriage Lump sum money for education,

Marriage. Facility to stop premium for 2- 3 yrs

for these extra expenses

Children independent, nearing the

Golden years.

Safe accumulation for the golden Years.

Considerably lower life insurance as The

dependencies have decreased.

Flexibility

Starting a Job, Single individual Choose low death benefit,

Choose growth/balanced option for

Asset creation.

Recently married, no kids Increase death benefit, choose

growth/balanced option for asset

Creation.

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Married, with kids Increase death benefit; choose

Balanced option for asset creation.

Choose riders for enhanced protection. Use

top-ups to

increase your accumulation.

Kids going to school, college Withdrawal from the account for

The education expenses of the child.

Higher studies for child, marriage Withdrawal from the account for

Higher education/marriage expenses of the

child. Premium

holiday-to stop premium for a

Period without lapsing the policy.

Children independent, nearing the

Golden years.

Decrease the death benefit reduce

It to the minimum possible.

Choose the income investment

Option. Top ups form the Accumulation (with

reduced

expenses) for the golden

Yrs cash accumulation.

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5. Findings

Findings

From the above project, I would point out that the insurance industry is growing at a very fast

pace .The Insurance needs of the people are increasing.

ULIPs are simple combination of Term assurance and investment.

Synergy, flexibility, durable tax advantages, flexibility in debt- equity ratio, top up facility,

transparency, subjected to market conditions, capital appreciation makes ULIPs structurally more

effective for achieving long term financial goals.

There is no other investment avenue which provides double the amount invested, in case of death

due to accident or on death.

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Therefore insurance has and should be a part of every persons portfolio which satisfies twin

objectives of protection against risks & to increase your wealth.

Putting your money in the ULIP equity fund will give you a good return and capital appreciation.

However there are also some classes of consumers in society who are still unaware of

investment plans and strongly rely upon traditional plans. This might be due to unawareness,

unwillingness to take or bear risk.

Life Insurance Corporation of India still plays a major role in market, As it is government

oriented, major percentages of investors still trust on LIC of India. Only consumers having some

prior knowledge about market and investment opportunities and simultaneously returns are ready

to willing to invest in private insurance companies.

Life advisor plays a crucial role under private insurance companies, as it is totally depend upon

the presentation how he or she presents to investor or client. Ultimately its client, who if

understand the plan properly, will inv

ulips project

Documents