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“ULIPS v/s Mutual fund” as an Investment Option among the

Investors of Ludhiana

Presented by-

Maninder Vadhrah

Historical background of the group

It was established in 1865.Aimed to finance the growing trade between

Europe, India & China.By 1880s, the bank was acting as banker to

Hong Kong Government.It is also participated in the management of

British government accounts in China, Japan, Penang & Singapore.

Introduction to HSBC

HSBC is world’s local bank.

Headquarters in London.

HSBC’s international network comprises over 9500 offices in 76 countries & territories in Europe, the Asia-Pacific region, the Americas, the Middle East & Africa.

HSBC provides a comprehensive range of financial services like-

1) Personal financial services

2) Commercial Banking

3) Corporate Banking

4) Investment Banking

HSBC Group in India

It offers a full range of Banking & Financial Services to its over 2.8 million customers.

It has 47 branches & 170 ATMs across 26 cities.

It has over 34,000 employees in its Banking, Investment Banking & Capital Markets.

With Asset Management, 2 Global IT development centres & 6 Global resourcing operations in the country.

Sale of Stake in Investsmart to HSBC

HSBC acquired 29.36% stake in IL&FS InvestSmart Ltd.

HSBC acquired 43.85% of InvestSmart from E*TRADE Mauritius Ltd.

HSBC has accepted shares to Public shareholders equivalent to 20.65% of InvestSmart’s capital.

Thus, it has completed its acquisition of 93.86% of IL&FS for a consideration of US$296.4 million.

Vision & Mission Vision :To become the preferred long term financial

partner to a wide base of customers whilst optimizing stakeholders value.

Mission: To establish a base of 1 million satisfied customers by 2010. We will create this by being a responsible and trustworthy partner.

PRODUCT PROFILE

All the products of IL&FS can be broadly divided into the following two categories:

Online Trading Products.Advisory Services.Other services.

Online Trading Product of IL&FS Investsmart

Basically IL&FS Investsmart offers three types of products to its retail customers.

Smart StartSmart InvestSmart Trade

Advisory Services

1. Mutual fund advisory services.

2. Portfolio management services.

3. IPO Advisory and Distribution Services.

4. Insurance Advisory Services.

5. Investment Advisory services

Other Services

1) Online services.

2) Research and Financial Analysis.

3) Value added services.

Organisational Members Mr. Manasije Mishra MD & CEO Mr. Avdhoot Deshpande Head - Equity and

Capital Markets Mr. Vipul Shah Head - NBFC Mr. Dharmen shah Vice President -

Institutional Equity Mr. Jaideep Anand Senior Vice President -

Institutional Sales & Dealing Mr. C. Diwakar Chief Information Officer Mr. K. Venkatesh Head – Distribution

Organization Chart

Branch ManagerMr. Saurabh Talwar

Offline

Opeartions (3 Persons)

Online

SWOT ANALYSIS

Strengths:-

1) Customization.

2) Expertise.

3) Unique Features.

4) Research Agency.

5) Extensive reach.

6) Brand image.

7) Competitive pricing.

Weaknesses:-

1) Expensive Products.

2) Tedious Procedures.

3) Fund Transfer.

4) Attrition.

Continued……….

Opportunities:-

1) Right Time to Investors to re-enter into market.

2) Huge untapped Markets.

3) Increasing number of Graduates.

4) Increase Tie-ups for Fund Transfer.

Threats:-

1) Stiff Competition.

2) Increasing awareness of Mutual Funds & ULIPS.

RATIO ANALYSIS1) Current Ratio

2007 2008 2009

Current Ratio 2.2 2.3 1.9

0.25

0.75

1.25

1.75

2.25

Current Ratio

Quick Ratio

2007 2008 2009

Quick Ratio 1 1.1 1.1

0.95

0.97

0.99

1.01

1.03

1.05

1.07

1.09

1.11

Quick Ratio

Return on Total Assets

2007 2008 2009

Return on Total Assets 12.5 12 9.9

1

3

5

7

9

11

13

Return on Total Assets

Net Profit Ratio

2007 2008 2009

Net Profit Ratio 6.1 5.5 6.6

4.9

5.1

5.3

5.5

5.7

5.9

6.1

6.3

6.5

6.7

6.1

5.5

6.6

Net Profit Ratio

Debt-Equity Ratio

2007 2008 2009

Debt-Equity Ratio 1.44 1.42 2.59

0.25

0.75

1.25

1.75

2.25

2.75

1.44 1.42

2.59

Debt-Equity Ratio

Introduction to the ULIPs Unit-linked insurance plans, popularly known

as Ulips are life insurance policies which offer a mix of investment and insurance similar to traditional life insurance policies, but with one major difference.

Unlike traditional policies, in Ulips investment risk lies with the insured (i.e., policy holder) and not with the insurance company

Different types of charges under ULIPs

• Premium Allocation Charge• Fund Management Charge (FMC)• Policy Administration Charge• Surrender Charge• Switching Charge• Mortality charge• Rider premium charge• Partial withdrawal charge

Working of ULIPs

ULIPs work on the lines of mutual funds. The premium paid by the client (less any charge) is used to buy units in various funds (aggressive, balanced or conservative) floated by the insurance companies.

Units are bought according to the plan chosen by the policyholder. On every additional premium, more units are allotted to his fund.

USP of ULIPS

Insurance cover plus savingsMultiple investment optionsFlexibilityWorks like an SIPFund Switching Option

HURDLES OF ULIP

No standardizationLack of Flexibility in Life coverOverstating the YieldInternally made Sales IllustrationNot all Show the Benchmark ReturnEarly exit OptionsCreeping Cost

Introduction to Mutual Funds

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.

J

Set up of Mutual fund

Types of Mutual Fund Scheme1) By Structure

a) Open ended Scheme.

b) Close ended Scheme.

c) Interval Scheme.

2) By Investment Objective

a) Growth Scheme.

b) Income Scheme.

c) Balanced Scheme.

d) Money Market Scheme.

3) Other Schemes

a) Tax Saving Scheme.

b) Special Scheme.

Advantages of Investing in Mutual Funds

• Diversification• Professional management• Liquidity• Convenience

Disadvantages of Investing in Mutual Funds

• No Guarantees• Fees and commissions• Taxes• Management risk

Comparison between ULIPS and Mutual fund

Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning.

ULIPs can be termed as mutual fund scheme with a insurance component

Points of difference between ULIPs & Mutual fund

Objective

Cost

Investment Duration

Flexibility

Liquidity

Investment Objective

Tax Implication

Title

“ULIPS v/s Mutual fund” as an investment option among the investors of Ludhiana

ObjectivesTo know the customers awareness about Ulips and

Mutual Fund.

To compare the investment in ULIPS plan with the Mutual fund.

To study the degree of risk involved in both.

To analyze the future prospective of these investment option.

Research Methodology

Research Design: -

Descriptive Research Design.

Data Collection: -

Primary Research:- Questionnaires

Secondary Research: - Journals & Magazines.

Sampling Unit:-

People of Ludhiana who are investing in ULIPs or Mutual fund

Sample Size:- 100.

Percentage of people who have invested in ULIPS, in Mutual fund and both

ULIPS Mutual fund Both0%

10%

20%

30%

40%

50%

60%

30%

51%

19%

Annual income of the investors

Below 2 lacs 2lacs-4 lacs 4lacs-6 lacs Above 6 lacs0%

10%

20%

30%

40%

50%

60%

70%

17%20%

40%

23%

14% 16%

37%33%

5%

11%

26%

58%

ULIPSMutual FundBoth

Factors consider by investors before investing in ULIPS and Mutual fund

Safety of Principal High Return Maturity Period Terms and Conditions0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

39%42%

12%

7%

Information Sources helpful to the investor in making investment decision

Journals Reference Group

Television Brokers Newspaper0%

10%

20%

30%

40%

50%

60%

70%

5%

21%

5%

66%

3%

Preference of investor regarding different types of funds

Equity based fund

Debt based fund

Balanced fund Open ended fund

Close ended fund

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.215

0.115

0.268

0.306

0.096

The reasons for investing in ULIPS

Reason Strongly Agree(2)

Agree(1)

Neutral(0)

Disagree(-1)

Strongly Disagree(-2)

Total Mean

Tax Rebate

98 31 0 -7 -4

118 1.18

Life Insurance

106 34 0 -3 -4

133 1.33

Capital Growth

76 34 0 -9 -5

96 .96

Investment of excess money 44 23 0 -29 -26

12 .12

49 31 11 7 2

53 34 8 3 2

38 34 14 9 5

22 23 13 29 13

The reason for investing in Mutual Fund

Reasons Strongly Agree(2)

Agree(1)

Neutral(0)

Disagree(-1)

Strongly Disagree(-2)

Total Mean

Tax Rebate

58 26 0 -21 -32

31 .31

Capital Growth

96 39 0 -6 -4 125

1.25

Investment of excess money

64 28 0 -24 -18 50

.50

24

26

8 21

16

48

39

5 6 2

32

28

7 24

9

Preference of ULIPS or mutual fund on the basis of following factors

Diversi

fication

Profesio

nal man

agement

Low co

st

Liquidity

Flexib

ility

0%

20%

40%

60%

80%

100%

120%

38% 40% 34%17% 12%

62% 60% 66%83% 88%

Mutual fundULIPS

Investment in ULIPS and Mutual fund by risk profile

Low risk Moderate risk High risk0%

10%

20%

30%

40%

50%

60%

70%

53%

33%

14%12%

61%

26%

ULIPSMutual fund

Expected annual Return from both ULIPS and Mutual fund

less than 10% 11-15% 15-20% 20-25%0%

10%

20%

30%

40%

50%

60%

7%

36%

47%

10%

2%

10%

35%

53%

ULIPSMUTUAL FUND

Preferred tenure of investment for ULIPS and Mutual Fund

Short term Mid term Long term0%

10%

20%

30%

40%

50%

60%

70%

80%

7%

23%

70%

12%

37%

51%

ULIPSMutual Fund

Awareness among peoples regarding the controversy of ULIPS

59%

41%

yesno

Preferred investment option for investing their money in future

69%

31%

Mutual fundULIPS

Findings• People are aware regarding ulips &Mutual fund but, the

awareness regarding mutual fund is high comparative to ulips.

• People with high income group are more likely to invest their money but, people who invest in both ulips and mutual fund mostly belongs to the income group of more than 6 lacs.

• Broker and reference group plays an important role while making an investment decision of an investor.

• Open ended funds & closed funds are more popular among investors of Ludhiana.

Insurance and tax rebate is the most important reason for investing in ulips & people are investing in mutual fund for the appreciation of the capital invested by them.

Among the various advantages liquidity & flexibility plays the most important role for the preference of mutual fund over ulips

Low risk is taken in case of ulips & moderate risk in case of mutual funds.

The expected annual return is high for mutual fund comparative to ulips.

The preferred tenure of investment is same for both ulips & mutual fund

The recent controversy related to ulips will going to affect its future demand &in future also more number of investors will like to invest their money in mutual fund.

So future is bright for mutual funds.

Conclusion

RECOMMENDATIONS The people do not want to take risk. The AMC should

launch more diversified funds so that the risk becomes minimize. This will lure more and more people to invest in mutual funds and ulips.

The expectation of the people from the mutual funds is high. So, the portfolio of the fund should be prepared taking into consideration the expectations of the people.

Try to reduce fund charges, administration charges and other charges which help to invest more funds in the security market and earn good returns

Different campaigns should be launched to educate people especially regarding SIP.

Companies should give regular dividends as it depicts profitability.

Companies should give handsome brokerage to brokers so that they get attracted towards distribution of the funds.

ULIPs is good for those who prefer investment plus insurance.