A comparative analysis of ulip of bajaj allianz life insurance co

A Comparative Analysis of ULIP of Bajaj Allianz Life
Insurance Co. Ltd with Mutual Fund

MINI PROJECT REPORT

Submitted by
RAJEEV JOSEPH
REG.NO:08BA020
1st Year MBA
KARUNYA UNIVERSITY

Under the guidance of

Ms. P.M. ANUSHIA
LECTURER

KARUNYA SCHOOL OF MANAGEMENT
KARUNYA UNIVERSITY
COIMBATORE – 641114
2008-2010

DECLARATION

I, Rajeev Joseph, do hereby declare that this project work entitled “A
Comparative Analysis of ULIP of Bajaj Allianz Life Insurance Co. Ltd
with Mutual Fund” is an outcome of my study and is submitted in partial
fulfillment of the requirement for the award of the degree of Master of
Business Administration, Karunya University.

I also declare that this report has not been submitted by me fully or
partially for the award of any degree, diploma, title, recognition or any other
fellowship of any other university before.

Place: Changanacherry

Date: 21-06-2009 RAJEEV JOSEPH

ACKNOWLEDGEMENT

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

I express my deep and sincere gratitude to Ms. P.M. Anushia, Faculty
guide for providing the necessary assistance for the project.

I sincerely acknowledge my gratitude to Mr. Justin Paul, Branch
Manager of Bajaj Allianz Life Insurance Company Ltd, Changanacherry
branch and Mr. Biju Sebastian ,Sales Manager for giving me an
opportunity to do this project.

I also owe my sincere thanks to all the staff in Bajaj Allianz Life
Insurance Company Ltd, Changanacherry branch, and the faculties of the
Department of Business Administration, KARUNYA UNIVERSITY for
their valuable guidance and suggestion in the preparation of this report
and completing the same successfully.

CHAPTER CONTENT PAGE No:

1 Executive Summary 1

Introduction 2

Objectives 3

Limitation 3

2 Indian Insurance Industry 4

3 Industry Profile 11

Unit Linked Insurance Policy (ULIP) 15

Mutual Fund 22

4 Data Interpretation and Analysis 41

Findings and Suggestion 71

Conclusion and Recommendations 73

Bibliography 74

5 Annexture 78

EXECUTIVE SUMMARY

“A comparative Analysis of ULIP plans of Bajaj Allianz Life Insurance with mutual
funds in Changanacherry Branch” an analysis to be done be by Rajeev Joseph,
student(MBA) of Karunya University, Coimbatore.

Total Investment scenario is changing, in past people were not interested in investment
because there were no good options available for investment. Now there are many
options available for investment like life Insurance, Mutual fund, Equity market, Real
estate, etc.
Today people want more services and more return on their investment. So, most of the
insurance companies are providing more value – added services with the basic insurance
operation.
Another option for investment available is Mutual Fund. Mutual Funds are providing
good returns. So while investing people tend more to words mutual fund as they are
providing more returns than Insurance also, with a good investment portfolio. Mutual
fund companies are providing more liquidity.
The project was taken to know about, what are the main aspects in Bajaj Allianz Life
Insurance Company, and its USP (Unique Selling Preposition).Which gives it highest
business and customers. Customers always prefer to invest in a good option and in a
company which is market leader.
After survey and analysis I came to know that most of the people go for ULIP insurance
policies to cover the risk of life, and invest it in a good Portfolio but there is big portion
of customers have taken the policies to save the taxes. And people are aware about the
tax benefits they get for insurance policies. Therefore, while investing in any Investment
option investor checks whether his money is safe or not, Mutual funds provides good
returns but investments are directly exposed to risk. As in ULIP returns are related to
stock market but they are having some insurance benefit and IRDA regulates the
investment.

Many people are getting the tax benefits in ULIP. In Mutual Fund they have to invest
their money in tax saving funds to get the tax benefit.

INTRODUCTION

To make comparison of ULIP plans with Mutual funds in Bajaj Allianz Life Insurance
Co. Ltd. and to Create awareness about Unit Linked Insurance Plan (ULIP) Benefits. The
overall goal of this project was to create awareness about investments. The Above
problem arises because every life insurance company has their products having different
positive and negative aspects.

Life Insurance is booming sector in today’s economy. So the responsibilities of the
insurance companies have been increased as compare to the past. Because in past people
were taking insurance policies for protection tool only. In present scenario insurance
sector is providing more services with the basic life insurance. Bajaj Allianz Life
Insurance has number of products, which gives the right way to save the money and earn
good profit by invested premium. Today people want more services and more return on
their investment. So this insurance company is providing more value – added services
with the basic insurance operation.

By doing this type of study in this Insurance sector and looking at the vast scope and
opportunity to study this booming field of Life Insurance and the growing awareness
among the public regarding insuring their life through Life insurance policies as well as
the growing contribution of Insurance in GDP of country with the number of private
players making entrance in this booming industry of Insurance.

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through

these investments and the capital appreciations realized are shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund is the most
suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost.

OBJECTIVES

•To understand the reason for which customers prefer ULIP as one of the best
insurance investment mode rather than Mutual fund.

•To find the significance difference between customers of different income with that
of investment mode.

•To Compare Investment Options of customers in ULIPs and Mutual Funds.

LIMITATIONS

• The middle class people do not know basic concept of ULIP so creating awareness
is a big challenge for me.

• The findings of my research is from a small sample size.

• Narrow minded thinking of middle class people as investment is not their cup of
tea.

• Many customers are thinking that investment in share market is very risky. As ULIP
and Mutual fund both are related to share market.

• A general preference to LIC and SBI over private players.

• Hesitations on the part of respondents to disclose financial information.

INDIAN INSURANCE INDUSTRY
The history of life insurance in India dates back to 1818 when it was conceived as a
means to provide for English Widows. Interestingly in those days a higher premium was
charged for Indian lives than the non-Indian lives as Indian lives were considered more
riskier for coverage. The Bombay Mutual Life Insurance Society started its business in
1870. It was the first company to charge same premium for both Indian and non-Indian
lives. The Oriental Assurance Company was established in 1880. The General insurance
business in India, on the other hand, can trace its roots to the Triton (Tital) Insurance
Company Limited, the first general insurance company established in the year 1850 in
Calcutta by the British. Till the end of nineteenth century insurance business was almost
entirely in the hands of overseas companies.Insurance regulation formally began in India
with the passing of the Life Insurance Companies Act of 1912 and the provident fund Act
of 1912. Several frauds during 20's and 30's sullied insurance business in India. By 1938
there were 176 insurance companies. The first comprehensive legislation was introduced
with the Insurance Act of 1938 that provided strict State Control over insurance business.
The insurance business grew at a faster pace after independence. Indian companies
strengthened their hold on this business but despite the growth that was witnessed,
insurance remained an urban phenomenon.

The Government of India in 1956, brought together over 240 private life insurers and
provident societies under one nationalized monopoly corporation and Life Insurance
Corporation (LIC) was born. Nationalization was justified on the grounds that it would
create much needed funds for rapid industrialization. This was in conformity with the

Government's chosen path of State lead planning and development.The (non-life)
insurance business continued to thrive with the private sector till 1972. Their operations
were restricted to organized trade and industry in large cities. The general insurance
industry was nationalized in 1972. With this, nearly 107 insurers were amalgamated and
grouped into four companies- National Insurance Company, New India Assurance
Company, OrientalInsurance Company and United India Insurance Company. These
were subsidiaries of the General Insurance Company (GIC).The general insurance
business was nationalized after the promulgation of General Insurance Business
(Nationalizations) Act, 1972. The post-nationalization general insurance business was
undertaken by the General

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

Oriental Insurance Company Limited; New India Assurance Company Limited; National
Insurance Company Limited; and United India Insurance Company Limited.

Some of the important milestones in the life insurance business in India are:

1850:

Non life insurance debuts with triton insurance company.

1870:

:Bombay mutual life assurance society is the first Indian owned life insurer

1912:

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

1928 :

:The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.

1938:

Earlier legislation consolidated and amended to by the Insurance Act with the objective
of protecting the interests of the insuring public.

1956:

245 Indian and foreign insurers and provident societies taken over by the central
government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956,
with a capital contribution of Rs. 5 Crore from the Government of India. The General
insurance business in India, on the other hand, can trace its roots to the Triton Insurance
Company Ltd., the first general insurance company established in the year 1850 in
Calcutta by the British.

Some of the important milestones in the general insurance business in India are:

1907:

The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes
of general insurance of India.

1957 :

General Insurance Council, a wing of the Insurance Association of India, frames a code
of conduct for ensuring fair conduct and sound business practices.

1968 :

The Insurance Act amended to regulate investments and set minimum solvency margins
and the Tariff Advisory Committee set up.

1972 :

The General Insurance Business (Nationalization) Act, 1972 nationalized the general
insurance business in India with effect from 1st January 1973. 107 insurers amalgamated
and grouped into four companies’ viz. the National Insurance Company Ltd., the New

India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United
India Insurance Company Ltd. GIC incorporated as a company.

1993: Malhotra Committee- headed by former Finance Secretary and RBI Governor R.N.
Malhotra- was formed to evaluate the Indian insurance industry and recommend its future
direction. The Malhotra committee was set up with the objective of complementing the
reforms initiated in the financial sector.
1997 : Insurance regulator IRDA set up.

2000: IRDA starts giving licenses to private insurers:Kotak Life Insurance ,ICICI
potential and HDFC standard Life insurance are the first private insurers to sell a policy.

2001: Royal Sundaram Alliance first non life insurer to sell a policy 2002 Banks allowed
to sell insurance plans.

INSURANCE MARKET –PRESENT

The insurance sector was opened up for private participation seven years ago. For years
now, the private players are active in the liberalized environment. The insurance market
have witnessed dynamic changes which includes presence of a fairly large number of
insurers both life and non-life segment. Most of the private insurance companies have
formed joint venture partnering well recognized foreign players across the globe.

LIFE INSURANCE COMPANIES

Sl. No. Insurer Foreign Partners

1 HDFC Standard Life Insurance Co. Ltd. Standard Life Assurance, UK
2 Standard Life Assurance, UK New York Life, USA
3 ICICI-Prudential Life Insurance Co. Ltd. Prudential , UK
4 Om Kotak Life Insurance Co. Ltd. Old Mutual, South Africa
5 Birla Sun Life Insurance Co. Ltd. Sun Life, Canada
6 Tata-AIG Life Insurance Co. Ltd. American International Assurance Co.,
USA
7 SBI Life Insurance Co. Ltd. BNP Paribas Assurance SA, France
8 ING Vysya Life Insurance Co. Ltd. ING Insurance International B.V.,
Netherlands

9 Allianz Bajaj Life Insurance Co. Ltd. Allianz, Germany
10 Metlife India Insurance Co. Ltd. Metlife International Holdings Ltd., USA
11 Reliance Life Insurance Co. Ltd.
12 AVIVA Aviva International Holdings Ltd., UK
13 Sahara Life Insurance Co. Ltd.
14 Shriram Life Insurance Co. Ltd. Sanlam, South Africa
15 Bharti AXA Life Insurance Co. Ltd. AXA Holdings, France
16 Future Generali India Life Insurance Pantaloon Retail Ltd.; Sain Marketing
Company Ltd Network Pvt. Ltd. (SMNPL), Generali,
Italy
17 IDBI Fortis Life Insurance Company Ltd. Fortis, Netherlands
18 Canara HSBC OBC Life Insurance HSBC, UK
Company Ltd.
19 Aegon Religare Life Insurance Company Religare, Netherlands
Ltd.
20 DLF Pramerica Life Insurance Co. Ltd. Prudential of America, USA
21 Life Insurance Corporation of India
TOP 10 LIFE INSURANCE COMPANIES IN INDIA
LIC (Life Insurance Corporation of India) still remains the largest life insurance company
accounting for 64% market share. Its share, however, has dropped from 74% a year
before, mainly owing to entry of private players with innovative products and better sales
force.

ICICI Prudential Life Insurance Co Ltd is the biggest private life insurance company
in India. It experienced growth of 58% in new business premium, accounting for increase
in market share to 8.93% in 2007-08 from 6.97% in 2006-07.

Bajaj Allianz Life Insurance Co Ltd has reported a growth of 52% and its market share
went up to 6.98% in 2007-08 form 5.66% in 2006-07. The company ranked second (after
LIC) in number of policies sold in 2007-08, with total market share of 7.36%.

SBI Life Insurance Co Ltd in terms of new number of policies sold, the company ranked
6th in 2007-08. New premium collection for the company was Rs 4,792.66 crore in
2007-08, an increase of 87% over last year.

Reliance Life Insurance Co Ltd Total collected was Rs 2,792.76 crore and its market
share went up to 2.96% from 1.23% a year back. It now ranks 5th in new business
premium and 4th in number of new policies sold in 2007-08.

HDFC Standard Life Insurance Co Ltd with an income of Rs 2,680 crore in FY2007-08,
registering a year-on-year growth of 64%. Its market share is 2.88% and it ranks 6 th
among the insurance companies and 5th amongst the private players.

Birla Sun Life Insurance Co Ltd market share of the company increased from 1.22% to
2.11% in 2007-08.

Max New York Life Insurance Co Ltd has reported growth of 73% in 2007-08. Total
new business generated was Rs 641.83 crore as against Rs 387.51 crore.

Kotak Mahindra Old Mutual Life Insurance Ltd the fiscal 2007-08, the company
reported growth of 80%, moving from the 11th position to 9th. It captured a market share
of 1.19% in 2007-08. Aviva Life Insurance Company India Ltd ranking dropped to 10th
in 2007-08 from 9th last year. It has presence in more than 3,000 locations
across India via 221 branches and close to 40 banc assurance partnerships. Aviva Life
Insurance plans to increase its capital base by Rs 344 crore.

MARKET SHARE OF VARIOUS LIFE INSURANCE COMPANIES
IN INDIA

Here is the market share of various Life Insurance Companies in India at the end of
FY2008.

Company Name Market Share (in %)

LIC 48.1%

ICICI Prudential 13.7%

Bajaj Allianz 10.3%

SBI Life 6.2%

HDFC Standard 4.1%

Birla Sunlife 3.4%

Reliance Life 3.4%

Max New York 2.4%

OM Kotak 1.9%

AVIVA 1.8%

Tata AIG 1.5%

MetLife 1.4%

ING Vysya 1.2%

Shriram Life 0.3%

Bharti Axa Life 0.2%

BOOMING INSURANCE MARKET IN INDIA
With a huge population base and large untapped market, insurance industry is a big
opportunity area in India for national as well as foreign investors. India is the fifth largest
life insurance market in the emerging insurance economies globally and is growing at
32-34% annually. This impressive growth in the market has been driven by liberalization,
with new players significantly enhancing product awareness and promoting consumer
education and information. The strong growth potential of the country has also made
international players to look at the Indian insurance market. Moreover, saturation of
insurance markets in many developed economies has made the Indian market more
attractive for international insurance players

This research report will help the client to analyze the leading-edge opportunities critical
to the success of insurance industry in India. Based on this analysis, the report gives a
future forecast of the market that is intended as a rough guide to the direction in which
the market is likely to move.
Total life insurance premium in India is projected to grow Rs 1,230,000 Crore by
2010-11.

•Total non-life insurance premium is expected to increase at a CAGR of 25% for the
period spanning from 2008-09 to 2010-11.

•With the entry of several low-cost airlines, along with fleet expansion by existing
ones and increasing corporate aircraft ownership, the Indian aviation insurance
market is all set to boom in a big way in coming years.

•Home insurance segment is set to achieve a 100% growth as financial institutions
have made home insurance obligatory for housing loan approvals.

•Health insurance is poised to become the second largest business for non-life
insurers after motor insurance in next three years.

•A booming life insurance market has propelled the Indian life insurance agents into
the ‘top 10 country list’ in terms of membership to the Million Dollar Round Table
(MDRT) — an exclusive club for the highest performing life insurance agents.

COMPANY PROFILE
Bajaj Allianz Life Insurance is a union between Allianz SE, one of the largest Insurance
Company and Bajaj Finserv.
Allianz SE is a leading insurance conglomerate globally and one of the largest asset
managers in the world,managing assets worth over a Trillion(Over INR 55,00,000
Crores).Allianz SE has over 115 years of financial experience and is present in over 70
countries around the world.

At Bajaj Allianz Life Insurance, customer delight is the guiding principle. Their business
philosophy is to ensure excellent insurance and investment solutions by offering
customized products, supported by the best technology.

VISION

To be the first choice insurer for customers

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

To be the number one insurer for creating shareholder value.

MISSION

As a responsible, customer focused market leader, we will strive to understand the insurance
needs of the consumers and translate it into affordable products that deliver value for money.

Accelerated Growth

Fiscal Year No. of policies sold New Business in FY
2001-2002(6 mths) 21,37 Rs. 7 cr.
2002-2003 1,15,965 Rs. 63.3 cr.
2003-2004 1,86,443 Rs. 180 cr.
2004-2005 2,88,189 Rs. 857 cr.
2005-2006 7,81,685 Rs. 2,717 cr.
2006-2007 20,79,217 Rs. 4,302 cr.
2007-2008 37,44,742 Rs. 6,674 cr.
Bajaj Allianz General Insurance received the Insurance Regulatory and Development
Authority (IRDA) certificate of Registration on 2nd May, 2001 to conduct General
Insurance business (including Health Insurance business) in India. The Company has an
authorized and paid up capital of Rs 110 crores. Bajaj Finserv Limited holds 74% and the
remaining 26% is held by Allianz, SE.

As on 31st March 2009, Bajaj Allianz General Insurance maintained its premier position
in the industry by achieving growth as well as profitability. The company garnered a
premium income of Rs. 2866 crore, achieving a growth of 11 % over the last year. Bajaj
Allianz has made a profit before tax of Rs. 149.8 crore and has become the only private
insurer to cross the Rs.100 crore mark in profit before tax in the last two years. The profit
after tax was Rs.95 crores, which is also the highest by any private insurer. The company
ranked second (after LIC) in number of policies sold in 2007-08, with total market share
of 7.36%.

RESULTS FOR CURRENT FY TILL 31ST DECEMBER 2008
The Gross Written Premiums (GWP) for the nine months ended on 31st Dec 2008, is Rs
6726 crores as compared to Rs 5219 crores in the corresponding period of the previous
year - growth of 29%. New Business premium for the nine months ended on 31st Dec
2008 is Rs. 3003 crores as compared to Rs. 3780 crores in the corresponding period of
previous year.

Commission on new business premium, which was 27% during nine months ended on
31st Dec 2007, came down to 20% during the current period.

Operating expenses came down to 20% of GWP for the current period of nine months
ended on 31st Dec 2008 as compared to 26% for the corresponding period of previous
year.

The Company posted a profit of Rs 364 lacs for the period ended 31st Dec 2008 as
compared to a profit of Rs 5358 lacs in the corresponding period of the previous year.
The policyholder surplus is Rs 15514 lacs (corresponding period of previous year Rs
18681 lacs) and the shareholders’ loss stands at Rs 15150 lacs (corresponding period of
previous year: Rs 13323 lacs).

Number of policies underwritten during the nine months ended 31st Dec 2008 were
18,08,495 (corresponding period of the previous year 23,62,496). Policies in force as on
31 st Dec 2008 is around 70 lacs. The company ranked second (after LIC) in number of
policies sold in 2007-08, with total market share of 7.36%.

The share capital (including share premium) is Rs. 1211 crores as on 31st December
2008. The solvency as on 31 st Dec 2008 stands at 261% (required solvency is 150%).
During the period ended 31st Dec 2008, no additional capital has been infused. Despite
challenging environment, the company has been able to not only reduce commission but
also operating expenses. The solvency margin of the company continues to be very
strong.

As on 31st Dec 2008, the Company employed on roll 22,129 staff as against 20,764 staff
at 31st March 2008.The Company operates out of 1,138 offices as on 31 Dec 2008.

PRODUCTS PROFILE

Unit Linked Plan
•New family gain
•New unit gain plus
•New unit gain premier

Traditional plan
•Invest gain
•Cash gain
•Child gain

Retirement Solutions
•Swarna visranthi
•New unit gain easy pension plus

Health Plan

•Care first
•Health care

Term Plan
•Risk care
•Term care

UNIT LINKED INSURANCE POLICY

(ULIP)

UNIT LINKED INSURANCE POLICY (ULIP)

A unit linked insurance policy is one in which the customer is provided with a life
insurance cover and the premium paid is invested in either debt or equity products or a
combination of the two. In other words, it enables the buyer to secure some protection for
his family in the event of his untimely death and at the same time provides him an
opportunity to earn a return on his premium paid. In the event of the insured person's
untimely death, his nominees would normally receive an amount that is the higher of the
sum assured (insurance cover) or the value of the units (investments).However, there are
some schemes in which the policyholder receives the sum assured plus the value of the
investments.

Every insurance company has four to five ULIPs with varying investment options,
charges and conditions for withdrawals and surrender. Moreover, schemes have been
tailored to suit different customer profiles and, in that sense, offer a great deal of choice.

The advantage of ULIP is that since the investments are made for long periods, the
chances of earning a decent return are high.

Just as in the case of mutual funds, buyers who are risk averse can buy into debt schemes
while those who have an appetite for risk can opt for balanced or equity schemes.
However, the charges paid in these schemes in terms of the entry load, administrative
fees, underwriting fees, buying and selling charges and asset management charges are
fairly high and vary from insurer to insurer in the quantum as also in the manner in which
they are charged.

Tax benefits

The premiums paid for ULIPs are eligible for tax rebates under section 80 which allows a
a maximum of Rs. 1,00,000 premiums paid for taxable income below Rs 8,50,000 and
Proceeds from ULIPs are tax-free under section 10(10D) unlike those from a mutual fund
which attract short term capital gains tax.

Key features

Premiums paid can be single, regular or variable. The payment period too can be regular
or variable. The risk cover (insurance cover) can be increased or decreased.As in all
insurance policies, the risk charge (mortality rate) varies with age. However, for an
individual the risk charge is always based on the age of the policyholder in the year of
commencement of the policy. These charges are normally deducted on a monthly basis
from the unit value. For instance, if there is an increase in the value of units due to
market conditions, the sum at risk (sum assured less the value of investments) reduces
and so the risk charges are lower. The maturity benefit is not typically a fixed amount and
the maturity period can be advanced (early withdrawal) or extended.

Investments can be made in gilt funds (government securities), balanced funds (part debt,
part equity), money-market funds; growth funds (equities) or bonds (corporate bonds).

The policyholder can switch between schemes (for instance, balanced to debt or gilt to
equity). The investment risk is transferred to the policyholder.The maturity benefit is the
net asset value of the units. The value would be high or low depending on the market
conditions during the period of the policy and the performance of the fund manager.

Thus there is no capital protection on maturity unless the scheme specially provides for it.
There could be policies that allow the policyholder to remain invested beyond the
maturity period in the event of the maturity value not being satisfactory.

POINTS TO REMEMBER ABOUT ULIP
First-year charges: Usually, a minimum of 15 per cent. However, high premiums attract
lower charges and vice versa. Charges can be as high as 70 per cent if the scheme affords
a lot of flexibility. Subsequent charges: Usually lower than first-year charges. However,

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

Administration charges: This ranges between Rs 15 per month to Rs 60 per month and
is levied by cancellation of units and also depends on the nature of the scheme.

Risk charges: The charges are broadly comparable across insurers.

Asset management fees: Fund management charges vary from 0.6 per cent to 0.75 per
cent for a money market fund, and around 1.5 per cent for an equity-oriented scheme.
Fund management expenses and the brokerage are built into the daily net asset value.

Switching charges: Some insurers allow four free switches in every year but link it to a
minimum amount. Others allow just one free switch in each year and charge Rs 100 for
every subsequent switch. Some insurers don't charge anything.

Top-ups: Usually attracts 1 per cent of the top-up amount. Top-up normally goes directly
into your investment account (units) unless you specifically ask for an increase in the risk
cover.

Surrender value of units: Insurers levy certain charges if the policy is surrendered
prematurely. This levy varies between insurers and could be around 75 per cent in the
first year, 60 per cent in the second year, 40 per cent in the third year and nil after the
fourth year.

Fund performance: You could check out the performance of similar schemes (balanced
with balanced; equity with equity) across insurance companies.

Look at NAV performance over a period of at least two to three years. This can only give
you some indication about the credibility of the fund manager because past performance
is no guarantee to future returns, especially in insurance products where the emphasis is
on long-term performance (10 years or more).

Since insurance is a product, which entails a long-term commitment on the part of the
insurer, it is important not to go only by the features or the cost advantages of schemes
but by the parentage of the insurer as well.

Comparing schemes based on costs is a fairly complex exercise. As a rule, the higher the
initial years' expenses the longer it takes for the policy to outperform its peers with low
initial years' costs and slightly higher subsequent year expenses.

Retire unhurt

Pension plans are essentially tailored to meet old age financial requirements. But there
are certain advantages in joining a pension plan.

First of all, contribution to pension funds upto Rs 10,000 is eligible for tax deduction
under section 80CCC. In other words, your pension contribution will get deducted from
your taxable income.

So if you are in the top tax bracket, liable to pay to a 30.6 per cent tax, then your tax
savings will be that much.

All life insurance companies offer pension products - both conventional and unit-linked.
In both cases you pay a certain premium amount for a specified length of time.

Usually, the minimum entry age is 18 years and the maximum age is 60 years. You can
choose to pay the premium for five to 30 years. When the policy matures, you receive
one-third of the value of the accumulated amount as a lump-sum payment.

For the remaining, you can buy annuities either from the existing insurer or any other
insurer.

While in a conventional scheme, your money is managed through the insurer's pooled
investment account and you are entitled to bonuses every year, in a ULIP you receive the
value of the investment in your individual account.

In a ULIP you have the flexibility to choose between a conservative scheme or an
aggressive scheme with high allocation to equities. Pension policy imposes huge
penalties for early termination.

HOW DOES ULIP WORK
Sara is a thirty-year old who wants a product that will give him market-linked returns as
well as a life cover. He wants to invest Rs 50,000 a year for 10 years in an equity-based

scheme. Based on this premium, the sum assured works out to Rs 532,000, the exact
amount of premium being Rs 50,032.
Based on the current NAV of the plan that Sara chooses to invest in, he is allotted units in
the scheme. Then, units equivalent to the charges are deducted from his portfolio.
The charges in the first year include a 14 per cent sales charge, an administration charge
(7 per cent for the first Rs 20,000 and 3 per cent for the remaining Rs 30,000) and
underwriting charges, which are deducted monthly.
Besides, mortality charges or the charges for the life cover are also deducted. For the
remaining nine years a 3.5 per cent sales charge and an administrative charge of 4 per
cent (for the first Rs 20,000 and 2 per cent for the remaining Rs 30,000) are levied in
addition to mortality charges.
Fund management fee of 1.5 per cent (equity) and brokerage are also charged. This cost
is built into the calculation of net asset value.
On maturity - that is, after 10 years - Sara would receive the sum assured of Rs 532,000
or the market value of the units whichever is higher.
Assuming the growth rate in the market value of the units to be 6 per cent per annum Sara
would receive Rs 581,500; assuming the growth rate in the market value of the units to be
10 per cent, Sara would receive Rs 7,24,400.
In case of Sara's untimely death at the end of the ninth year, his beneficiaries would
receive the sum assured of Rs 532,000 or the market value of the units whichever is
higher. Assuming the growth rate in the market value of units is 6 per cent per annum, the
value of investment would be Rs 510,200.
However, his family will get Rs 532,000 as it is the sum assured.
Assuming a growth rate of 10 per cent per annum, the value of units at the end of the
ninth year would be Rs 621,900. Hence, the beneficiaries would get Rs 621,900.

ADVANTAGES OF ULIP

•Can easily rebalance your risk between equity and debt without any tax implications.

•Best suited for medium risk taking individuals who wish to invest in equity and debt
funds (at least 40% or higher exposure to debt). No additional tax burden for those
investing mainly in debt unlike in MFs.

RISKS ASSOCIATED WITH ULIPS

ULIPS as the name suggests are directly linked with the investments made by the
insured. Though he does not have a direct say in this but he does offer his choice in the
form of investment.

With stock markets soaring high a few months back, ULIPs were offering a good rate of
return, but now with a sudden downfall of the stocks, ULIPs are bound to become
negative investments.

At present, a policy-holder cannot understand the growth of his investments vis-à-vis
other funds in the market, since there is no benchmark to measure one fund against the
other. Usually a policy-holder could ask his investment in a ULIP to be, for example, 55
per cent in equity and 45 per cent in debt. These components can be mixed according to
his risk-taking ability. An investor, therefore, would have to look at quarterly statements,
where the fund would be compared with benchmarks. However, this may not be a true
representation of the NAV, as the ULIP could be a mix of debt, liquid and equity
investments.

The reality is that most of the ULIPs take more than 5 years to break even. Policies where
the costs are 65 per cent and upwards have not even recovered the principal despite the
strongest bull market we have ever witnessed.

MUTUAL FUND

INTRODUCTION OF MUTUAL FUNDS:

A mutual fund is simply a financial intermediary that allows a group of investors to pool
their money together with a predetermined investment objective. The mutual fund will
have a fund manager who is responsible for investing the pooled money into specific
securities (usually stocks or bonds). When you invest in a mutual fund, you are buying
shares (or portions) of the mutual fund and become a shareholder of the fund.
Mutual funds are one of the best investments ever created because they are very cost
efficient and very easy to invest in (you don't have to figure out which stocks or bonds to
buy).

By pooling money together in a mutual fund, investors can purchase stocks or bonds with
much lower trading costs than if they tried to do it on their own. But the biggest
advantage to mutual funds is diversification.

ACCORDING TO AMFI (ASSOCIATION OF MUTUAL FUND OF
INDIA):

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciation realized is shared by its unit holders in
proportion to the number of units owned by them.

Thus a Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost. The flow chart below describes broadly the working of a mutual fund.

CHARACTERISTICS OF A MUTUAL FUND:

•Investors own the mutual fund.

•Professional managers manage the affairs for a fee.

•The funds are invested in a portfolio of marketable

•Securities, reflecting the investment objective.

•Value of the portfolio and investors’ holdings, alters with

•Change in market value of investments.

ADVANTAGES OF MUTUAL FUNDS:

The advantages of investing in a Mutual Fund are:

1. Professional Management: You avail of the services of experienced and skilled
professionals who are backed by a dedicated investment research team which analyses
the performance and prospects of companies and selects suitable investments to achieve
the objectives of the scheme.

2. Diversification: Mutual Funds invest in a number of companies across a broad cross
section of industries and sectors. This diversification reduces the risk because seldom do
all stocks decline at the same time and in the same proportion.You achieve this
diversification through a Mutual Fund with far less money than you can do on your own.

3. Convenient Administration: Investing in a Mutual Fund reduces paperwork and helps
you avoid many problems such as bad deliveries, delayed payments and unnecessary
follow up with brokers and companies. Mutual Funds save your time and make investing
easy and convenient.

4. Return Potential: Over a medium to longterm, Mutual Funds have the potential to
provide a higher return as they invest in a diversified basket of selected securities.

5. LowCosts: Mutual Funds are a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in brokerage,
custodial and other fees translate into lower costs for investors.

6. Liquidity: In open-ended schemes, you can get your money back promptly at
AssetValue (NAV) related prices from the Mutual Fund itself.With close-ended schemes,
you can sell your units on a stock exchange at the prevailing market price or avail of the
facility of repurchase
through Mutual Funds at NAV related prices which some close-ended and interval
schemes
offer you periodically.

7. Transparency: You get regular information on the value of your investment in
addition to
disclosure on the specific investments made by your scheme, the proportion invested in
each
class of assets and the fund manager’s investment strategy and outlook.

8. Flexibility: Through features such as Systematic Investment Plans (SIP), Systematic
Withdrawal Plans (SWP) and dividend reinvestment plans, you can systematically invest
or withdraw funds according to your needs and convenience.

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

over a lifetime.

10. Well Regulated: All Mutual Funds are registered with SEBI and they function within
the
provisions of strict regulations designed to protect the interests of investors.The
operations
of Mutual Funds are regularly monitored by SEBI.

DISADVANTAGES OF MUTUAL FUNDS:

· No Guarantees: No investment is risk free. If the entire stock market declines in
value, the value of mutual fund shares will go down as well, no matter how balanced the
portfolio. Investors encounter fewer risks when they invest in mutual funds than when
they buy and sell stocks on their own. However, anyone who invests through a mutual
fund runs the risk of losing money.
· Fees and commissions: All funds charge administrative fees to cover their day-to-
day expenses. Some funds also charge sales commissions or "loads" to compensate
brokers, financial consultants, or financial planners. Even if you don't use a broker or
other financial adviser, you will pay a sales commission if you buy shares in a Load
Fund.
· Taxes: During a typical year, most actively managed mutual funds sell anywhere from
20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its
sales, you will pay taxes on the income you receive, even if you reinvest the money you
made.
· Management risk: When you invest in a mutual fund, you depend on the fund's
manager to make the right decisions regarding the fund's portfolio. If the manager does
not perform as well as you had hoped, you might not make as much money on your

investment as you expected. Of course, if you invest in Index Funds, you forego
management risk, because these funds do not employ managers.
A measurement of an option position or premium in relation to the underlying instrument.
In mutual fund also there is certain amount of risk-return factor associated according to
the investment option these are as follows,

RISK RETURN

Equity High High

Balanced Medium Medium

Debt Low Low

TYPES OF MUTUAL FUNDS:

I. Closed-end or Open-end

Open-end Funds: An open-end fund is one that has units available for sale and
repurchase at all time. An investor can buy or redeem units from the fund itself at a price
based on the Net Asset Value (NAV) per unit.

Close-end Funds: A close ended fund makes a one-time sale of a fixed number of unit. It
does not allow investors to buy or redeem units directly from the funds. However, to
provide liquidity to investors many closed-end funds get themselves listed on stock
exchange. Funds do offer “buy-back of funds/units” thus offering another avenue for
liquidity to closed-end fund investor.

II. Load vs. No Load: Marketing of a new mutual fund scheme involves initial
expense. These expenses may be recovered from the investors in different ways at
different times. Three usual ways in which a fund’s sales expenses may be recovered
from the investors are:

1. At the time of investor’s entry into the fund/scheme, by deducting a specific amount
from his initial contribution: front-end or entry load.

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

3. At the time of the investor’s exit from the fund/scheme, by deducting a specific
amount from the redemption proceeds payable to the investor: back end or exit load
These charges made by the fund managers to the investors to cover
distribution/sales/marketing expenses are often called “loads”. Funds that charge front-
end, back-end or deferred loads are called load funds. Funds that make no such charges
or loads for sales expenses are called no-load funds.

In India, SEBI has defined a “load” as the one-time fee payable by the investor to allow
the fund to meet initial issue expenses including brokers’/agents’/distributors’
commissions, advertising and marketing expenses.

A load fund’s declared NAV does not include load charges

III. Tax-exempt vs. Non-Tax exempt Funds: Generally, when a fund invests in
tax-exempt securities, it is called a tax-exempt fund. In India, after the 1999 Union
Government Budget, all of the dividend income received from any of the mutual funds is
tax-free in the hands of the investors. However, funds other than Equity Funds have to
pay a distribution tax, before distributing income to investors. In other words, equity
mutual fund schemes are tax-exempt investment avenues, while other funds are taxable
for distributable income.

Different types of mutual fund

Types of Mutual Fund:

Once we have reviewed the fund classes, we are ready to discuss more specific fund
types. Funds are generally distinguished from each other by their investment objectives
and types of securities they invest in.

A. Broad Fund Types by Nature of Investments

Mutual funds may invest in equities, bonds or other fixed income securities, or short-term
money market securities. So we have Equity, Bonds and Money Market Funds. All of
them invest in financial assets. But there are funds that invest in physical assets. For
example, we may have Gold or other Precious Metal Funds, or Real Estate Funds.

B. Broad Fund Types by Investment Objective

Investors and hence the mutual funds pursue different objectives while investing. Thus,

Growth Funds invest for medium to long term capital appreciation.

Income Funds invest to generate regular income, and less for capital appreciation.

Value Funds invest in equities that are considered under-valued today, whose value will
be unlocked in the future.

C. Broad Fund Types by Risk Profile

The nature of a fund’s portfolio and its investment objective imply different levels of risk
undertaken. Funds are therefore often grouped in order of risk. Thus, Equity Funds have a
greater risk of capital loss than a Debt Fund that seeks to protect the capital while looking
for income. Money Market Funds are exposed to less risk than even the For internal use
by Training Department of Prudential ICICI Mutual Fund Bond Funds, since they invest
in short-term fixed income securities, as compared to longer-term portfolios of Bond
Funds.

Money Market Funds: Lowest rung in the order of risk level, Money Market Funds
invest in securities of a short-term nature, which generally means securities of less than
one-year maturity.

Gilt Funds: Gilts are government securities with medium to long-term maturities,
typically of over one year (under one-year instruments being money market securities).

Debt Funds (or Income Funds): Next in the order of risk level, we have the general
category Debt Funds. Debt funds invest in debt instruments issued not only by
governments, but also by private companies, banks and financial institutions and other
entities such as infrastructure companies/utilities.

Diversifies Debt Funds: A debt fund that invests in all available types of debt securities,
issued by entities across all industries and sectors is a properly diversified debt fund. A
diversified debt fund is less risky than a narrow-focus fund that invests in debt securities
of a particular sector or industry.

Focused Debt Funds: Some debt funds have a narrow focus, with less diversification in
its investment. Examples include sector, specialized and offshore debt funds. Other
examples of focused funds include those that invest only in Corporate Debentures and
Bonds or only in Tax Free Infrastructure or Municipal Bonds.

High yield Debt Funds: There are funds which seek to obtain higher interest rates by
investing in debt instruments that are considered “below investment grade”. e.g. Junk
Bond Funds.

Assured Return Funds – an Indian Variant: The SEBI permits only those funds whose
sponsors have adequate net-worth to offer assurance of return. For e.g. MIPs. Investors
have some lock-in period.

Fixed Term Plan Series – Another Indian Variant: These are essentially closed-end.
These plans do not generally offer guaranteed returns. This scheme is for short-term
investors who otherwise place money as fixed term bank deposits or inter corporate
bonds.

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

they face increased risk level.

•No guarantee returns

•High potential for growth of capital

Types of Equity Fund

a) Aggressive Growth Fund

•Maximum capital appreciation
•Invests in less researched or speculative shares.

•Very volatile & riskier.

b) Growth Fund

•Growth fund invest in companies whose earnings are expected to
•Rise above average rate. e.g. Technology Fund
•Capital appreciation in 3 – 5 years
•Less volatile then aggressive growth fund.
c) Specialty Fund

They invest in companies that meet predefined criteria.

i) Sector Funds

•Technology Fund
•Pharmaceutical Fund
•FMCG Fund
ii) Offshore Funds

Invest in equities in one or more foreign countries.

iii) Small-Cap equity Funds

Invest in shares of companies with relative lower market capital.

d) Diversified Equity Funds

A fund that seeks to invest only in equities, except for a very small portion in liquid
money market securities, bur is not focused on any one or few sectors or shares, may be
termed a diversified equity fund. While exposed to all equity price risks, diversified
equity funds seek to reduce the sector or stock specific risks through diversification.

i) Equity Linked Savings Schemes: An Indian Variant

Investment in these schemes entitles the investor to claim an income tax rebate, but
usually has a lock-in period before the end of which funds cannot be withdrawn.

e) Equity Index Funds

An index fund tracks the performance of a specific stock market index. The objective is
to match the performance of the stock market by tracking an index that represents the
overall market. The funds invest in share that constitute the index and in the same
proportion on the index.

f) Value Funds

Value Funds try to seek out fundamentally sound companies whose shares are currently
under-prices in the market. Value Funds will add only those shares to their portfolios that
are selling at low price-earnings ratios, low market to book value ratios and are
undervalued by other yardsticks. Fund concentrate on future growth prospect having
good potential.

g) Equity Income Funds

There are equity funds that can be designed to give the investor a high level of current
income along with some steady capital appreciation, investing mainly in shares of
companies with high dividend yields.

•Hybrid Funds – Quasi Equity/Quasi Debt: Many mutual funds mix these (money
market, debt and equity) different types of securities in their portfolios. Such funds
are termed “hybrid funds” as they have a dual equity/bond focus.

•Commodity Funds: While all of the debt/equity/money market funds invest in
financial assets, the mutual fund vehicle is suited for investment in any other- for
examples- physical assets.
•Real Estate Funds: Specialized Real Estate Funds would invest in Real Estate
directly, or may fund real estate developers, or lend to them, or buy shares of housing
finance companies or may even buy their securities assets.

Following are the different products and services Offered by Mutual
Fund Companies

•Open ended schemes

•Close ended schemes

•Growth/Equity oriented Schemes

•Income/Debt oriented Schemes

•Balanced Funds

•Money market or liquid funds

•Gilt Funds

•Index Funds

•Exchange Traded Funds

•Sectoral Funds

•Thematic Funds

•Commodity Funds

•Real Estate Funds

•Tax Saving Funds

•Hybrid Funds

There are several ways for investment and disinvestments in mutual funds such as :

•Systematic Investment Plans (SIPs)

•Value Averaging

•Systematic Transfer Plans (STPs)

•Systematic Withdrawal Plans(SWPs)

•Automatic Reinvestment Plans.

•Open ended fund
In an open-ended fund, sale and repurchase of units happen on a continuous basis,
at NAV related prices, from the fund itself.
The corpus of open-ended funds, therefore, changes every day.

•Close ended fund
A closed-end fund offers units for sale only in the NFO. It is then listed in the
market.
Investors wanting to buy or sell the units have to do so in the stock markets.
Usually closed-end funds sell at a discount to NAV.
The corpus of a closed-end fund remains unchanged.
•Growth fund
Provide capital appreciation over the medium to long-term
•Investor who does not require periodic income distribution can choose the option,
where the incomes earned are retained in the investment portfolio and allowed to
grow, rather than being distributed to investors.

•Investors with longer investment horizons and limited requirements for income
choose this option.
•The return to the investor who chooses a growth option is the rate at which his
initial investment has grown over a period for which he has invested in the fund.
•The investor choosing this option will vary the NAV with the value of the
investments portfolio , while the no. of units held with remains constant.
•Income fund
Provide regular and steady income to investor
•Balanced fund
Provide both growth and regular income.
•Money market fund
Provide easy liquidity, regular income and preserve the income
•Tax saving scheme
offer tax rebeats to the under specific provisions of the Indian income tax laws
Investment made under some schemes are allowed as deduction U/S 88 of the
income tax act .

• Automatic Reinvestment Plans
Reinvestment of amount of dividend made by fund in the same fund.
In this option, the no. of units held by the investor will change with every
reinvestment.
The value of units will be similar to that under the dividend option
There are four types of plans as follows
• Lump sum Investment
It is one time investment..
Investors can invest particular amount one time for fixed time of period.

• Systematic Investment Plans( SIP) – For regular investment
SIP is investing a fixed sum periodically in a disciplined manner for long term.
It gives benefit of Rupee Cost averaging.
In SIP monthly minimum Rs.500 or Rs.100 are invested.

Interest is calculating compoundly.
Many SIP gives insurance benefits.
VAP is modified version of SIP. It is Voluntary Accumulation Plan. It allows the
investor flexibility with respect to the amount and frequency of investment.
In VAP, investor has to impose voluntary self discipline.

• Systematic Withdrawal Plan ( SWP) – For regular income
The lump sum amount is invested for one time and then fixed percent amount is
withdraw monthly.
Remaining amount will grow continuously.
This plan is suitable for retired person, because it gives regular income.
• Systematic Transfer Plan ( STP) –
Transfer on a periodic basis a specified amount from one scheme to another
within the same fund family.
It gives option to the investor if the current fund performance in not satisfactory.

• Dividend option
• Investors will receive dividends from the mutual fund , as an and when
dividends are declared.
•Dividends are paid in the form of warrants or are directly credited to the
investor’s bank accounts.
•In normal dividend plan , periodicity of dividends is left to the fund managers,
the timing of the dividend payout is decided by fund manager.
•Mutual funds provide the option of receiving dividends at pre-determined
frequencies,wich can vary from daily,weekly,monthly,quarterly,half-yearly and
annual. Investors can choose the frequency of dividend distribution that suits
their requirements.
•Investors choosing this option have a fixed no. of units invested in the fund and
earned incomes on this investment.

•The NAV of this investors holding will vary with changes in the value of
portfolio and the impact of the proportion of income earned by the fund to what
is actually distributed as dividend.

REGULATORS IN INDIA

•SEBI - The capital markets regulators also regulates the mutual funds in India. SEBI
requires all mutual funds to be registered with them. SEBI issues guidelines for all
mutual funds operations - investment, accounts, expenses etc.
•RBI as supervisor of banks owned mutual funds - As banks in India came under the
regulatory jurisdiction of RBI, bank owned funds to be under supervision of RBI and
SEBI.
•RBI as supervisor of Money Market Mutual Funds - RBI has supervisory
responsibility over all entities that operate in the money markets. Hence in the past
Money Market Mutual Funds scheme of Mutual funds had to be abide by policies laid
down by RBI.
Recently, it has been decided that Money Market Mutual Funds of registered mutual
funds will be regulated by SEBI through SEBI (Mutual Fund) Regulations 1996.

COMPARISON OF ULIP VS MUTUAL FUND

Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual
funds in terms of their structure and functioning. As is the cases with mutual funds,
investors in ULIPs are allotted units by the insurance company and a net asset value
(NAV) is declared for the same on a daily basis.

Similarly ULIP investors have the option of investing across various schemes similar to
the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds
and debt funds to name a few. Generally speaking, ULIPs can be termed as mutual fund
schemes with an insurance component.
However it should not be construed that barring the insurance element there is nothing
differentiating mutual funds from ULIPs

1. Mode of investment/ investment amounts
Mutual fund investors have the option of either making lump sum investments or
investing using the systematic investment plan (SIP) route which entails commitments
over longer time horizons. The minimum investment amounts are laid out by the fund
house.
ULIP investors also have the choice of investing in a lump sum (single premium) or
using the
conventional route, i.e. making premium payments on an annual, half-yearly, quarterly or
monthly basis. In ULIPs, determining the premium paid is often the starting point for the
investment activity.
This is in stark contrast to conventional insurance plans where the sum assured is the
starting point and premiums to be paid are determined thereafter.
ULIP investors also have the flexibility to alter the premium amounts during the policy's
tenure. For example an individual with access to surplus funds can enhance the
contribution thereby ensuring that his surplus funds are gainfully invested; conversely an
individual faced with a liquidity crunch has the option of paying a lower amount (the
difference being adjusted in the accumulated value of his ULIP). The freedom to modify
premium payments at one's onvenience clearly gives ULIP investors an edge over their
mutual fund counterparts.

2. Expenses
In mutual fund investments, expenses charged for various activities like fund
management, sales and marketing, administration among others are subject to pre-
determined upper limits as prescribed by the Securities and Exchange Board of India.

For example equity-oriented funds can charge their investors a maximum of 2.5% per
annum on a recurring basis for all their expenses; any expense above the prescribed limit
is borne by the fund house and not the investors.

Similarly funds also charge their investors entry and exit loads (in most cases, either is
applicable). Entry loads are charged at the timing of making an investment while the exit
load is charged at the time of sale.

Insurance companies have a free hand in levying expenses on their ULIP products with
no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and
Development Authority. This explains the complex and at times 'unwieldy' expense
structures on ULIP offerings. The only restraint placed is that insurers are required to
notify the regulator of all the expenses that will be charged on their ULIP offerings.

Expenses can have far-reaching consequences on investors since higher expenses
translate into lower amounts being invested and a smaller corpus being accumulated.

3. Portfolio disclosure
Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis,
albeit most fund houses do so on a monthly basis. Investors get the opportunity to see
where their monies are being invested and how they have been managed by studying the
portfolio.

There is lack of consensus on whether ULIPs are required to disclose their portfolios.
During our
interactions with leading insurers we came across divergent views on this issue.

While one school of thought believes that disclosing portfolios on a quarterly basis is
mandatory, the other believes that there is no legal obligation to do so and that insurers
are required to disclose their portfolios only on demand.

Some insurance companies do declare their portfolios on a monthly/quarterly basis.
However the lack of transparency in ULIP investments could be a cause for concern
considering that the amount invested in insurance policies is essentially meant to provide
for contingencies and for long-term needs like retirement; regular portfolio disclosures on
the other hand can enable investors to make timely investment decisions.

4. Flexibility in altering the asset allocation
As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are
largely
comparable. For example plans that invest their entire corpus in equities (diversified
equity funds), a 60:40 allotment in equity and debt instruments (balanced funds) and
those investing only in debt instruments (debt funds) can be found in both ULIPs and
mutual funds.

If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt
from the same fund house, he could have to bear an exit load and/or entry load.
On the other hand most insurance companies permit their ULIP inventors to shift
investments across various plans/asset classes either at a nominal or no cost (usually, a
couple of switches are allowed free of charge every year and a cost has to be borne for
additional switches).
Effectively the ULIP investor is given the option to invest across asset classes as per his
convenience in a cost-effective manner.

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.

REVIEW OF LITERATURE

Mr.Madhu T, made a study on ‘ULIPs hold edge over mutual funds’.The findings shows
that distributors would push unit linked insurance plans (ULIPs) to earn better
commission. ULIPs offer attractive frontend commissions to agents. However,
independent financial advisors believe that though there is a possibility of some
distributors favoring ULIPs in the short term, the new directive would be beneficial for
both the industry and investors in the long run.(Mr.Madhu T, The Economic
Times,June2009).

Mr.Deepak Shenoy ,in his article ‘Comparing ULIP returns to Mutual Funds’, he reveals
that, over the last three years, their growth mutual fund has given better returns than the
"MAXIMISER" option of their ULIPs.(Deepak Shenoy, The Indian Investor’s Blog,
August 2006).

Mr.Murthaza and Sony, in their article ‘An Overview on ULIP’, This article is an initiative
from Bajaj Allianz to create better understanding of ULIPs and its benefits so that
investors can avail maximum returns from their investments.

Mr.Bernz Jayma P, made a study on ‘Mutual Fund disadvantages’. He suggested that ,’If
you're new to stock market investing you may have heard that mutual funds would be a

good way for you to get started. That's actually good advice, but mutual funds have their
own pitfalls to watch out for.’

DATA INTERPRETATION
AND
ANALYSIS

(A) Gender:

Gender

Cumulative
Frequency Percent Valid Percent Percent
Valid Male 37 74.0 74.0 74.0

Female 13 26.0 26.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
The above graph shows that , out of 50 customers, 74% of the respondents are male
policy holders and the rest 26% are female policy holders.

(B) Marital Status:

Marital
Cumulative
Valid Married 33 66.0 66.0 66.0
Unmarried 17 34.0 34.0 100.0
Total 50 100.0 100.0

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

(C) Age:

Age
Cumulative
Valid 20-30 6 12.0 12.0 12.0
30-40 14 28.0 28.0 40.0
40-50 17 34.0 34.0 74.0
50-60 11 22.0 22.0 96.0
60-70 2 4.0 4.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
The graph shows that majority of the sample respondents were in the age group of 40-50
yrs ie,34%, 12% were in the age group of 20-30 yrs & 28% of them were 30-40 yrs, 22%
were in the age group of 50-60 yrs and 4% were in the age group of 60-70 yrs.

(D) Occupation:

Occupation
Cumulative
Valid Government 18 36.0 36.0 36.0
Private service 14 28.0 28.0 64.0
Business 11 22.0 22.0 86.0
NRIs 3 6.0 6.0 92.0
Others 4 8.0 8.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
The graph shows that majority of the policy holders are working in the Government
sector i.e.36% , 28% of them are engaged in Private service, 22% of them are business
field, 6% of them are NRIs and 8% of them are engaged other works.

(E) Annual Income:

Annual income
Cumulative
Valid Below 2 lakhs 19 38.0 38.0 38.0
2-4 lakhs 23 46.0 46.0 84.0
4-6 lakhs 6 12.0 12.0 96.0
6-8 lakhs 2 4.0 4.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
The graph shows that 46% of the policy holders get a salary of 2-4 lakhs, 38% of the
policy holders get a salary of below 2 lakhs, 12% of the policy holders get a salary of 4-6
lakhs, 3 of the policy holders get a salary below 2 lakhs and 4% of them above 6-8 lakhs.

1. Sources that helps you in making investment decision.

Sources that helps you in making the investment decisions.
Cumulative
Valid Financial journal 5 10.0 10.0 10.0
Television 2 4.0 4.0 14.0
Brokers/Agent 27 54.0 54.0 68.0
Friends 13 26.0 26.0 94.0
Consultants 3 6.0 6.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
From the sample of 50 customers, 54% of the customers are strongly agree that the agents
or brokers helps them to make investment decision, 26% of the customers point out their
friends take part in the investment decision. And 10% customers reveal that the financial
journals helps them, Remaining 6% is from consultants, and 4% selects television as the
source.

2. Factors that influence your investment decision in a particular
company.

Factors that influence your investment decisions in a particular company.
Cumulative
Valid Attractive schemes 2 4.0 4.0 4.0
Tax benefits 27 54.0 54.0 58.0
High reputation 3 6.0 6.0 64.0
Rate of return 14 28.0 28.0 92.0
Variety of products 4 8.0 8.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
54% customers agree that the tax benefit is influence them to buy policy ,28%
looks the rate of return what they will earn, variety of products from the company attracts
8% customers, and high reputation of the company attracts 6% of the customers, and
remaining 4% pointing out the attractive schemes.

3. You generally like to invest money in.

You generally like to invest money.
Cumulative
Valid Insurance 13 26.0 26.0 26.0
Stock market 1 2.0 2.0 28.0
Mutual fund 6 12.0 12.0 40.0
Bank deposit 28 56.0 56.0 96.0
Both insurance and mutual 2 4.0 4.0 100.0
fund
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers, 56% of the customers invest money in bank deposit,
26% in insurance sector,12% in mutual fund, then 4% in both insurance and mutual
fund,and remaining 2% in stock market.

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

According to you who among the following life insurance companies is best.
Cumulative
Valid Bajaj Allianz 27 54.0 54.0 54.0
HDFC Standard life 5 10.0 10.0 64.0
Tata AIG 4 8.0 8.0 72.0
Aviva Life 3 6.0 6.0 78.0
SBI Life 11 22.0 22.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers,54% customers select Bajaj Allianz is the best insurance
company, and 22% customers choose SBI Life,10% select HDFC,8% for Tata AIG and
remaining 6% stands for Aviva life insurance company.

5. How would you rate our products.

How would you rate our products.
Cumulative
Valid Excellent 2 4.0 4.0 4.0
Good 37 74.0 74.0 78.0
Fair 9 18.0 18.0 96.0
Poor 2 4.0 4.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers,74% customers thinks that the products offered by Bajaj
Allianz Life insurance co. is good,4% thinks its excellent,18% of them select Bajaj
Allianz products are fair, and remaining 4% not satisfied with our products.

6. I would like to invest money in ULIP.

I would like to invest money in ULIP.
Cumulative
Valid Strongly agree 2 4.0 4.0 4.0
Agree 33 66.0 66.0 70.0
Neutral 8 16.0 16.0 86.0
Disagree 5 10.0 10.0 96.0
Strongly disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers, 66% agree, 4% of them strongly supporting that fact, and
16% has no opinion about it. And 4% strongly disagreed, remaining 10% also disagree
with investment in ULIP.

7. Reason for choosing ULIPs because of insurance coverage.

Reason for choosing ULIPs because of insurance coverage.
Cumulative
Agree 32 64.0 64.0 92.0
Neutral 2 4.0 4.0 96.0
Disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers, 64% of the customers agree, ,28% of them strongly
support it,4% customers didn’t say anything, and remaining 4% disagree with that fact.
So we can see that most of the Customers choose ULIP because of insurance coverage.

8. I would like to invest money in Mutual Funds.

I would like to invest money in mutual funds.
Cumulative
Agree 13 26.0 26.0 32.0
Neutral 14 28.0 28.0 60.0
Dsagree 18 36.0 36.0 96.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers,26% of the customers agree with that fact,6% of the
customers strongly support it,and 28% customers have no idea about it.And remaining
10% disagreed,out of this 10%, 4% strongly disagreed with it.

9. Mutual funds are more risky than ULIP products.

Mutual funds are more risky than ULIP products.
Cumulative
Agree 27 54.0 54.0 88.0
Neutral 4 8.0 8.0 96.0
disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers,54% of the customers thinks that mutual funds are more
risky than ULIP products,34% strongly agree with this statement.8% customers have no
opinion about it,and remaining 4% disagree with it.

10. ULIPs have advantage over Mutual funds.

ulip has advantage over mutual funds.
Cumulative
Agree 31 62.0 62.0 86.0
Neutral 5 10.0 10.0 96.0
Disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
62% of the customers agree with ULIP have advantage over mutual fund statement.24%
customers strongly agree with this fact. And 4% of customers not supporting the
statement. And remaining 10% have no opinion about it.

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

Safety
Cumulative
Agree 26 52.0 52.0 60.0
Neutral 2 4.0 4.0 64.0
Disagree 15 30.0 30.0 94.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers,52% customers agree,8% strongly agree,30% customers
were disagree with that fact,6% strongly disagree, and remaining 4% have no opinion
about safety factor is important in the investment of ULIP.

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

Liquidity
Cumulative
Agree 5 10.0 10.0 16.0
Neutral 5 10.0 10.0 26.0
Disagree 30 60.0 60.0 86.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers, majority of the customers disagree i.e. 60%, 14%
strongly disagree with that fact. And 6% strongly agree,10% agree,and remaining 10%
neither agree nor disagree with that statement.

13. Do you think the Rate of return factor is important in your
investment in ULIP.

Rate of return
Cumulative
Agree 21 42.0 42.0 54.0
Neutral 3 6.0 6.0 60.0
Disagree 12 24.0 24.0 84.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers, majority of the customers agree i.e. 42%, 12% strongly
agree with that fact. And 24% disagree,16% strongly disagree, and remaining 6% neither
agree nor disagree with that statement

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

Tax savings
Cumulative
Agree 21 42.0 42.0 54.0
Neutral 5 10.0 10.0 64.0
Disagree 16 32.0 32.0 96.0
Total 50 100.0 100.0

INTERPRETATION :

15. Past scheme’s performance influence your investment decision in
ULIP.

past scheme's performance
Cumulative
Agree 8 16.0 16.0 32.0
Neutral 7 14.0 14.0 46.0
Disagree 23 46.0 46.0 92.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers, majority of the customers disagree i.e. 46%, 8% strongly
disagree with that fact. And 16% strongly agree,16% agree, and remaining 14% neither

16. Advertisement influence the investment decision in ULIP.

Advertisement
Cumulative
Agree 11 22.0 22.0 40.0
Neutral 19 38.0 38.0 78.0
Disagree 5 10.0 10.0 88.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers, 22%agree, 18% strongly agree with that fact. And 10%
disagree,12% strongly disagree, and remaining 38% neither agree nor disagree with that
statement.

17. Do you think the safety factor is important in your investment in
mutual fund.

Safety
Cumulative
Agree 4 8.0 8.0 12.0
Neutral 8 16.0 16.0 28.0
Disagree 30 60.0 60.0 88.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers,8% customers agree,4% strongly agree,60% customers
were disagree with that fact 12% strongly disagree, and remaining 16% have no opinion
about safety factor is important in the investment of mutual fund.

18. Do you think the Liquidity factor is important in your investment in
mutual fund.

Liquidity
Cumulative
Agree 19 38.0 38.0 52.0
Neutral 15 30.0 30.0 82.0
Disagree 6 12.0 12.0 94.0
Total 50 100.0 100.0

INTERPRETATION :
agree nor disagree with that statement.

19. Do you think the Rate of return factor is important in your
investment in mutual fund.

Rate of return
Cumulative
Agree 7 14.0 14.0 18.0
Neutral 21 42.0 42.0 60.0
Disagree 15 30.0 30.0 90.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers, 30% disagree, 10% strongly disagree with that fact. And
14% agree,4% strongly agree, and remaining 42% neither agree nor disagree with that
statement.

20. Do you think the Tax savings is influence your investment decision
in mutual fund.

Tax savings
Cumulative
Agree 6 12.0 12.0 18.0
Neutral 23 46.0 46.0 64.0
Disagree 12 24.0 24.0 88.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers, 24% disagree, 12% strongly disagree with that fact. And
12% agree,6% strongly agree, and remaining 46% neither agree nor disagree with that
statement.

21. Past scheme’s performance influence your investment decision in
mutual fund.

past scheme's performance
Cumulative
Agree 22 44.0 44.0 56.0
Neutral 15 30.0 30.0 86.0
Disagree 7 14.0 14.0 100.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers, 44% agree, 12% strongly agree with that fact. And 14%
disagree, and remaining 30% neither agree nor disagree with that statement.

22. Advertisement influence the investment decision in mutual fund.

Advertisement
Cumulative
Agree 16 32.0 32.0 40.0
Neutral 24 48.0 48.0 88.0
Disagree 4 8.0 8.0 96.0
Total 50 100.0 100.0

INTERPRETATION :
From a sample of 50 customers, 8% strongly agree,32% agree with that fact. And 8%
strongly disagree,4% disagree, and remaining 24% neither agree nor disagree with that
statement.

23. I would like to reinvest my funds in the same company again.

Reinvestment in the same company again
Cumulative
Agree 15 30.0 30.0 76.0
Neutral 6 12.0 12.0 88.0
Disagree 4 8.0 8.0 96.0
Total 50 100.0 100.0

INTERPRETATION :
46% of the customers express their satisfaction level with Bajaj Allianz service. They
Strongly agree with the statement, 30% customers also agree with it. And 12% have
neutral situation. And remaining 12% not satisfied with Bajaj Allianz.

HYPOTHESIS-1

H0: There is no relationship between investment of ULIP and
Insurance coverage.

H1: There is relationship between investment of ULIP and insurance
coverage.

CORRELATIONS

Correlations
I would like to Reason for
invest money in choosing ULIPs
ULIP. because of

insurance
coverage.
I would like to invest money Pearson Correlation 1 .729**
in ULIP. Sig. (2-tailed) .000
N 50 50
**
Reason for choosing ULIPs Pearson Correlation .729 1
because of insurance Sig. (2-tailed) .000
coverage. N 50 50
**. Correlation is significant at the 0.01 level (2-tailed).

INTERPRETATION:

The above table shows that the reason for choosing ULIPs because of
insurance coverage is 0.000 which shows that there is a relationship between
investment of ULIP and insurance coverage.We can choose alternate
hypothesis because the significant value is less than 0.005.Hence it is very
clear that most of the customers choosing ULIP product because which
provide insurance coverage over their investment. So we can conclude that
most of the customers prefer ULIP products than Mutual funds because of
insurance coverage.

HYPOTHESIS-2

H0: There is no relationship between the investment pattern and annual
income of the customers.

H1: There is a relationship between the investment pattern and annual
income of the customers.

T-Test

Group Statistics
Annuaincome N Mean Std. Deviation Std. Error Mean

A comparative analysis of ulip of bajaj allianz life insurance co

A comparative analysis of ulip of bajaj allianz life insurance co

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