DO ULIPS MEET THE ASPIRATIONS AND GOALS OF INVESTORS?

International Journal of Research & Development in Technology and Management Science –Kailash

Volume - 21| Issue 4 | OCTOBER 2014 | ISBN - 1-63102-448-5 European Article Number [EAN]- 978-163-102-448-1

[email protected] | [email protected] | http://journal.rtmonline.in | http://www.ijrdtm.com

Paper Id: IJRDTM – 053034

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“DO ULIPS MEET THE ASPIRATIONS AND GOALS OF INVESTORS?” - A STUDY

by

Pallavi Pahuja |Assistant Professor | [email protected] |Chandigarh business school

ABSTRACT

The evaluation of financial planning has been increased through decades,

the existing ‘Behavioral Finance’ studies on factors influencing selection

of mutual fund and life insurance schemes are very few and very little

information is available about investor perceptions, preferences, attitudes

and behavior. Yet again, perhaps no efforts are made to analyze and

compare the selection behavior of Indian retail investors towards mutual

funds and life insurances particularly in post-liberalization period. With

this background this paper makes an earnest attempt to study the behavior

of the investors in the selection of these two investment vehicles in an

Indian perspective by making a comparative study. The thesis aims at

analyzing the preference of investors towards various investment avenues.

The saving objectives and source of information for investors and shall

advise the companies as to which is the most preferred investment avenue.

The study will help the individuals to make a wise decision in investing

their savings; such as: whom to buy from and where to buy. Further this

study will help mutual fund and life insurance companies to understand

the profile of Indian retail investors and their behavioral pattern. By

knowing this, companies can improve their products and can adopt most

apt strategy to tap unexplored market in a better way.

KEYWORDS: ULIPs, Investor Behavior, Investor Perception, Investment avenues

I. INTRODUCTION

The study aims at unit linked investment plans ULIPs. Analyse insurance as an investment

option/avenue. Meaning Of ULIP: Unit linked insurance plan (ULIP) is life insurance solution

that provides for the benefits of risk 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).





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The policy value at any time varies according to the value of the underlying assets at the time.

In a ULIP, the invested amount of the premiums after deducting for all the charges and

premium for risk cover under all policies in a particular fund as chosen by the policy holders

are pooled together to form a Unit fund. A Unit is the component of the Fund in a Unit Linked

Insurance Policy. The returns in a ULIP depend upon the performance of the fund in the

capital market. ULIP investors have the option of investing across various schemes,

In a ULIP, investors have the choice of investing in a lump sum (single premium) or making

premium payments on an annual, half-yearly, quarterly or monthly basis. Investors also have

the flexibility to alter the premium amounts during the policy's tenure.

For example, if an individual has surplus funds, he can enhance the contribution in ULIP.

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). ULIP investors can shift

their investments across various plans/asset classes (diversified equity funds, balanced funds,

debt funds) either at a nominal cost.

II. EXPENSES CHARGED IN A ULIP

Premium Allocation Charge: A percentage of the premium is appropriated towards

charges initial and renewal expenses apart from commission expenses before allocating

the units under the policy.

Mortality Charges: These are charges for the cost of insurance coverage and depend

on number of factors such as age, amount of coverage, state of health etc.

Fund Management Fees: Fees levied for management of the fund and is deducted

before arriving at the NAV.

Administration Charges: This is the charge for administration of the plan and is levied

by cancellation of units.

Surrender Charges: Deducted for premature partial or full encashment of units.

Fund Switching Charge: Usually a limited number of fund switches are allowed each

year without charge, with subsequent switches, subject to a charge.

Service Tax Deductions: Service tax is deducted from the risk portion of the premium





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III. UNIT LINKED INSURANCE PLAN

(ULIP) provides for life insurance where the policy value at any time varies according to the

value of the underlying assets at the time. ULIP is life insurance solution that provides for the

benefits of protection and flexibility in investment. The investment is denoted as units and is

represented by the value that it has attained called as Net Asset Value (NAV).

ULIP came into play in the 1960s and is popular in many countries in the world. The reason

that is attributed to the wide spread popularity of ULIP is because of the transparency and the

flexibility which it offers..

Unit Linked Insurance Plan - is a financial product that offers you life insurance as well as an

investment like a mutual fund. Part of the premium you pay goes towards the sum assured

(amount you get in a life insurance policy) and the balance will be invested in whichever

investments you desire - equity, fixed-return or a mixture of both.

Investments in ULIP is covered under Section 80C.

Figure 1 Premium Break up

IV. MUTUAL FUND

Mutual fund means indirect investment in share market, mutual fund has following

characteristics

It is a pool of money, collected from investors, invested according to certain investment

objectives

http://en.wikipedia.org/wiki/Life_insurance

http://en.wikipedia.org/wiki/Unitised_insurance_fund

http://en.wikipedia.org/wiki/Net_asset_value





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The ownership of the fund is thus joint or mutual; the fund belongs to all investors.

Mutual Funds are also known as Financial Intermediaries

In India, Mutual Funds are constituted as Trust.

The investors share is denominated by ‘units’ whose value is called as Net Asset Value

(NAV) which changes every day.

The investment portfolio is created according to the stated investment objectives of the

fund.

The ownership is in the hands of the investors who have pooled in their funds.

V. OBJECTIVES OF THE STUDY

To identify the key factors that influence customer’s preference towards ULIPs

To identify the preferred source of information for investors

To assess the saving objectives among individual investors.

To comparatively analyze the satisfaction levels in ULIPs and Mutual funds.

VI. RELATED WORK

Madhusudhan V. Jambodekar (1996,) conducted a study to assess the awareness of MFs

among investors, to identify the information sources influencing the buyer decision and the

factors influencing the choice of a particular fund. The study revealed that income schemes and

open-ended schemes are preferred over growth schemes and close-ended schemes during the

prevalent market conditions. Investors look for Safety of Principal, Liquidity and Capital

Appreciation in order of importance; Newspapers and Magazines are the first source of

information through which investors get to know about MFs / Schemes and the investor service

is the major differentiating factor in the selection of MFs.

Harry M. Kat (2000), highlighted the popularity of equity linked plans for which data from

various companies about their plans and sale of those plans. He used Hypothesis testing as a

tool for analysis to complete the interpretation of his study. He found that many have invested

in Equity linked plans

T.R. Rajeshwari (2001) , did a research To understand the savings avenue preference among





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retail mutual fund investors and to identify the preferred source of information. For this, a

Survey was done on 300 educated investors. Analysis tools used were Weighted mean value,

Std. deviation, factor analysis and chi square. It was found that the most favored saving avenue

is bank deposits and safety is the main consideration for investment.

Kavita Ranganathan (2004), conducted a study to assess the saving objectives among

individual investors and to assess the mutual fund conceptual awareness. The Research

methodology used was through an exploratory study by Judgment sampling of 100 investors of

Mumbai. The tools used for analysis were ANOVAs and chi square. It was found that main

saving objective is to save for retirement, majority of sample preferred mutual funds over

equity and maximum were aware about mutual funds.

Dr. Bhagaban Das (2006) , conducted a study to understand the retail investors’ behavior

towards different savings avenues, to identify the preferred source of information and to

identify the scheme preference of investors. The research methodology used was primary

survey on 100 educated investors. The tools used for analysis were Percentage Method, Chi-

square, Two-way ANOVA, Rank correlation and Z-test and t-test: to test the significance. It

was found that the investors have a wide difference with respect to their profession and also the

different investment patterns vary widely.

P Prasada Rao and Vedanatam (2006), conducted a study to identify the key factors that

influence customers preference for a particular mutual fund. Study was Exploratory by a

survey on 110 respondents by mode of a structured questionnaire. Factor analysis was the

underlying tool for analysis.

It was found that tax benefit is the first factor, secondly core product feature factor, and thirdly

fund strength factor.

B S Bodla and Sushma Rani Verma (2007) , examined buying behavior study in rural areas

to examine the preference of the policyholders towards various types of policies of insurance.

For which a survey was done on 188 respondents with the mode of a pre tested questionnaire.

Interpretation tool used was percentages. It was concluded that rural people have less faith in

private players and women segment is still untapped in rural market.

M R shollapur and A B kuchanur (2007), conducted a research to identify the popular

perceptions of the individual investors. Survey was conducted on 300 educated investors.

Variance and coefficient of variance (CV) were the key tools for analysis and interpretation of

data collected.





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M J Xavier (2007), surveyed investors by one to one interview to map the preferences of

individual investors of mutual funds. He used conjoint analysis as analysis tool.

He categorized investors in three categories, the dare devils, the image driven and the

conservative.

VII. RESEARCH METHODOLOGY AND DATABASE

Primary data: Sample selection (convenience sampling)

A systematically designed questionnaire filled in by 100 investors of tricity (Chandigarh,

Panchkula, Mohali).

Analytical procedure:

Data will be analyzed using:

Pie diagrams

Bar Graphs

Mean, and percentages

ANOVA (Analysis Of variance)

Correlation

SOFTWARE USED FOR ANALYSIS

SPSS

ANALYSIS

Rank the Objectives of your savings:…(1 for the most preferred , 6 for least preferred)

Objective Mean

Retirement Benefit 3.51

Tax Reduction 2.36

Meet Contingencies 3.28

Children's Education 4.04

Purchase of Assets 4.24

Capital Appreciation 3.6





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Figure 2 Objectives of your savings

VIII. INTERPRETATION

As per the response of sample it can be inferred that the primary goal of investment of

investors in tricity is tax benefit. The reason for the same is that income of most of the sample

is above 3 lakhs for which they need to save on their taxes and under 80 c they get exemption

of 1,00,000 on their savings. The second main Objective is to meet uncertainties’/

contingencies as people plan for future.

The other objectives follow thereafter like, capital appreciation, children’s education,

retirement benefit and purchase of assets.

Rank the following in the order of your preference as the convenient source of

information for investment decisions (1 for most preferred, 7 for least preferred)

Source of information Mean

reference Groups 2.5

Newspaper (General) 3.82

Newspaper (Business) 4.51

Financial Magazines 3.54

Television 4.6

Brokers/Agents 3.73

Mail 5.2





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Figure 3 Source of information

INTERPRETATION

Since the source of information for financial decisions is through reference groups therefore the

decision is influenced by reference groups by majority of respondents.

Thereafter spouse and self decision certainly matters. only minority pay to financial advisor for

financial advisory services, which further implies there is a huge untapped market for financial

advisors.

What is your preference of following as Savings Avenue? (Rank from 1 � first preference

to 8 � last preference)

Avenue Mean

Bank Deposit 1.54

ULIP 4.69

Pension & P.F. 3.86

Shares 6.04

Mutual Funds 5.54

Real Estates 5.51

Gold 5.74

Postal Savings 3.01





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Figure 4 Savings Avenue

INTERPRETATION

According to the analysis of collected data, the most preferred investment/saving avenue by the

investors in tricity is various forms of bank deposits. The second favored avenue is Postal

savings and pension and P.F specifically by service class.

ULIPs are ranked at 4th

surplus after saving in the first three preferred avenues in diversified

in ULIPs ,mutual funds, real estate ,shares, Gold etc.

Using the 5 point scale offer your response in the following scale 5-highly satisfied 4-

satisfied 3-neutral 2-dissatisfied 1-highly dissatisfied

Reasonableness of amount of investment

Mutual Funds Percent

Valid Highly Dissatisfied 19.5

Dissatisfied 20.7

Neutral 14.6

Satisfied 31.7

Highly Satisfied 13.4

Total 100.0

ULIPs Percent


Dissatisfied 4.9

Neutral 14.6

Satisfied 46.3


Total 100.0





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Regular and steady income

ULIPs Percent


Dissatisfied 14.6

Neutral 25.6

Satisfied 31.7

highly Satisfied 12.2

Total 100.0



Dissatisfied 18.3

Neutral 31.7

Satisfied 42.7


Total 100.0

Chances of capital appreciation

ULIPs Percent


Dissatisfied 15.9

Neutral 34.1

Satisfied 15.9


Total 100.0



Dissatisfied 18.3

Neutral 22.0

Satisfied 20.7


Total 100.0

Possibility of tax benefits

ULIPs Percent


Dissatisfied 20.7

Neutral 19.5

Satisfied 30.5


Total 100.0





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Dissatisfied 17.1

Neutral 30.5

Satisfied 29.3


Total 100.0

Transaction Costs



Dissatisfied 22.0

Neutral 32.9

Satisfied 24.4


Total 100.0

Provision of premature withdrawal facility

Mutual funds Percent


Dissatisfied 12.2

Neutral 30.5

Satisfied 28.0


Total 100.0

Liquidity of investment



Dissatisfied 29.3

Neutral 29.3

Satisfied 31.7


Total 100.0

ULIPs Percent


Dissatisfied 39.0

Neutral 18.3

Satisfied 20.7


Total 100.0

ULIPs Percent

Valid Highly Dissatisfied Valid

Dissatisfied

Neutral

Satisfied

Highly Satisfied

Total

ULIPs Percent


Dissatisfied 24.4

Neutral 23.2

Satisfied 25.6


Total 100.0





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Intensity of risk



Dissatisfied 40.2

Neutral 22.0

Satisfied 15.9


Total 100.0

Accessibility to sources of information

Mutual funds Percent


Dissatisfied 17.1

Neutral 24.4

Satisfied 36.6


Total 100.0

Appropriate service delivery

ULIPs Percent


Dissatisfied 20.7

Neutral 29.3

Satisfied 22.0


Total 100.0

ULIPs Percent


Dissatisfied 24.4

Neutral 23.2

Satisfied 30.5


Total 100.0

ULIPs Percent


Dissatisfied 24.4

Neutral 30.5

Satisfied 28.0


Total 100.0





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Dissatisfied 12.2

Neutral 34.1

Satisfied 17.1


Total 100.0

CORRELATION ANALYSIS BETWEEN AGE AND PREFERENCE FOR ULIPS.

Symmetric Measures

Value

Asymp. Std.

Errora Approx. T

b Approx. Sig.

Interval by

Interval

Pearson's R -.231 .110 -2.124 .037c

Ordinal by

Ordinal

Spearman

Correlation

-.218 .111 -1.994 .050c

N of Valid Cases 82

INTERPRETATION

Since the correlation is .050 hence it can be inferred that the AGE and preference for ULIPs

are correlated, the ULIPs vary for different age people.

CORRELATION BETWEEN GENDER AND PREFERENCE FOR ULIPS

Symmetric Measures

Value

Asymp. Std.

Errora Approx. T

b

Approx.

Sig.

Interval by Interval Pearson's R -.192 .102 -1.750 .084c

Ordinal by Ordinal Spearman

Correlation

-.196 .100 -1.787 .078c

N of Valid Cases 82





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INTERPRETATION

Since the correlation is more than .050 hence it can be inferred that the Gender and preference

for ULIPs are positively correlated, the preferences for ULIPs vary for males and females.

ANOVA (Analysis of variance)

Test is done to verify wether there is a significance difference between income of the

respondents and rating of QUALITY OF SERVICE (ULIP vs Mutual Fund)

ANOVA

Sum of

Squares df

Mean

Square F Sig.

QS Between

Groups

26.737 3 8.912 1.049 .376

Within

Groups

662.776 78 8.497

Total 689.512 81

m Between

Groups

46.185 3 15.395 1.841 .147

Within

Groups

652.267 78 8.362

Total 698.451 81

*QS=quality of service of ulips

M=quality of services of Mutual Funds

INTERPRETATION:

As the p- value for significance is more than .05 it can be inferred that the different groups

based on the incomes of respondents do not differ in their ratings of quality of service.

Test is done to verify wether there is a significance difference between income of the

respondents and rating of Benefits to investors(ULIP vs Mutual Fund)





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ANOVA

Sum of

Squares df

Mean

Square F Sig.

ben Between

Groups

54.697 3 18.232 1.314 .276

Within

Groups

1082.047 78 13.872

Total 1136.744 81

mf Between

Groups

28.562 3 9.521 .755 .523

Within

Groups

984.036 78 12.616

Total 1012.598 81

*ben=benefits to investors of ULIPs

Mf=benefits of investors of mutual funds

INTERPRETATION

As the p- value for significance is more than .05 it can be inferred that the different groups

based on the incomes of respondents do not differ in their ratings of Benefits to Investors..

IX. FINDINGS RELATED TO OBJECTIVES OF THE STUDY

It is inferred from the data analysis that aspirations and goals of investors before making

investment are primarily for tax reduction, to meet contingencies, capital appreciation, to

provide for children’s education etc.

Another important inference that came up from analysis of research that most preferred

source of information for investors is their reference groups. The reason for which is that

financial products are sold mainly through references. Most of the business generation in

insurance industry is through referrals.

It is found from the analysis that reference groups are the major source of information for

investment decisions. The reason is that people have the tendency to go by the words of





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their peer members and experiences of their friends. This has always been observed by the

other studies of behavioral finance.

Since the source of information for financial decisions is through reference groups

therefore the decision is influenced by reference groups by majority of respondents.

Thereafter spouse and self decision certainly matters. only minority pay to financial advisor

for financial advisory services, which further implies there is a huge untapped market for

financial advisors.

When satisfaction level of ULIPs was contrasted with Mutual Funds it was inferred:

a. There is a moderate level of satisfaction of respondents, for both of them for parameters

like reasonableness of amount of investment, provision of premature delivery, regular

and steady income, as for these parameters maximum respondents were satisfied when

asked them to rate.

b. There comes a neutral response for capital appreciation in ULIPs and Mutual Funds.

c. The respondents are satisfied as far as the tax benefits in ULIPs are concerned whereas

they are neutral when tax benefits in mutual funds are concerned.

d. In case of liquidity of investment the investors rate both ULIPs and Mutual Funds as

Satisfactory.

e. In case of transaction costs the maximum respondents are dissatisfied. In case of ULIPs

39% respondents are dissatisfied and in case of Mutual funds 22%. The reason for

which is charges in ULIPs at initial stage are very high.

ADDITIONAL FINDINGS, OTHER THAN OBJECTIVES OF THE STUDY.

After applying ANOVA (analysis of variance), it was inferred that different income

groups don’t rate differently the quality of services delivered by ULIPs and Mutual funds

companies . they rate them similar for both of the investment avenues.

ANOVA was also applied to know that whether there is a significance difference between

benefits to investors provided by ULIPs and Mutual Funds, by different income groups.

But it was found that there is no significant difference between both.





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Correlation was applied to know whether there is any correlation between age and

preference for ULIPs , and it was found that there is a positive relationship between both

the variables.

Correlation was also applied to find whether there is any significant relation between

Gender and preference towards ULIPs.

It was found that there is a positive correlation between both.

X. CONCLUSION

To sum up and conclude it can be revealed from the research, that , investors in the tricity are

aware of their investment decisions ,specifically in ULIPs, therefore they are satisfied with the

returns they are getting from ULIPs and Mutual Funds. They take wise investment decisions

not only by self, but by discussing with their spouse and most importantly the reference groups

or peer groups. Also, most of the retail investors invest more than 1,00,000 p.a for saving and

future purposes. The sole reason of dissatisfaction among investors is the huge transaction

costs.

Thanks to the growth of Insurance industry which have a ULIP for need of anyone and

everyone, ULIPs meet the aspirations and goals of retail investors.

XI. LIMITATIONS

Sample size could have been more; the accuracy would have been more.

Non cooperation and careless response of some of the respondents became a hassle in the

study.

ULIP could be compared with other investment avenues as well not only Mutual Funds.

Time limit was also a constraint in the study.

XII. RECOMMENDATIONS

Sample Size can be increased to get more accuracy in data , research and analysis.

ULIPs can be compared with other investment avenues as well.

Even rural investors perception can be mapped regarding ULIPs and other investment

avenues.

Perceptual mapping of various ULIPs, or Insurance Companies can be done.





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Insurance companies should advertise more in financial magazines and televisions as they

are the preferred source of information for the investors.

XIII. REFERENCES

1. Hackethal.Andreas and Jansen. Christian 2008, “How to meet private investors’

advisory needs” Accessed at http://ssrn.com/abstract=1009194

2. Kat. M Henry 2000, “Equity linked saving A New Product Range for Retail Investors”

Accessed at http://ssrn.com/sol3/papers.cfm?abstract_id=256659

3. Rajeshwari .T.R 2001, “An empirical analysis on factors influencing the mutual

fund/scheme selection by retail investors.” Accessed at http://www.utiicm. com/ Cmc /

PDFs/2001/rajeswari.pdf

4. Ranganathan.Kavita 2004, “A study on fund selection of individual investors towards

mutual funds-with reference to Mumbai city.” Accessed at http://papers.ssrn.com/sol3/

papers.cfm

5. Das.Dr Bhagwan 2006, “Mutual Fund vs. Life Insurance: Behavioral

6. Analysis of Retail Investors”, International Journal of Business and Management October,

2008 ,vol 89, Accessed at http ://w ww. Ccse net.org /journal /index .php/ ijbm/

article/viewFile/55/48

7. Rao.Prasada.P and Vedanatam 2006 , “Mutual funds: exploring the retail customer

expectations.” , the icfai journal of service marketing vol. IV No. 2 sept. 2007

8. Bodla. B.S 2007, “life insurance policies in rural areas: understanding buyer behavior”

the icfai journal of service marketing vol. IV No. 2 dec 2007

9. Shollapur.M.R and kuchanur.A.B 2007, “Identifying perceptions and perceptual gaps: a

study on individual investors in selected investment avenues.”, The icfai journal of

behavioral finance, vol V,No 2, 2008

10. Xavier.M.J 2007, “ An approach to segmenting mutual funds investors” Accessed at -

http://papers.ssrn.com/sol3/papers.cfm

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DO ULIPS MEET THE ASPIRATIONS AND GOALS OF INVESTORS?