ING Vysya Life Repaired) Mayank

8/9/2019 ING Vysya Life Repaired) Mayank

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A

Project Study Report

ON

Training Undertaken at

ING VYSYA LIFE INSURANCE

Comparision of unit linked plans with Mutual Funds

Submitted in partial fulfillment for the

Award of degree of

Master of Business Administration

Submitted by:

MAYANK MATHUR

Submitted to:

Jodhpur Institute of Management

(A Constituent of Jodhpur National University, Jodhpur)

2008-2010


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ACKNOWLEDGEMENT

Words are tools of expression, but they fail miserably when it comes to thanks giving. I

am indebted to so many persons that a complete acknowledgement would be

encyclopedic.

The successful completion of any research project required guidance and help from a

number of people. I was fortunate to have all the support from the employees of ING

Vysya life insurance, where I was placed for the training project. Hence, I take this

opportunity to express my profound sense of gratitude to all those who extended their

wholehearted support for carrying out the project work.

I wish to express my deepest gratitude to Mr. CHANDER SHEKHAR PUROHIT

(Branch Manager) of JAIPUR Branch for his timely guidance which was a immense

importance. I am thankful for his guidance and support.

In the end I wish to thank all those names who have directly or indirectly helped me in

various ways in carrying out this project successfully.

MAYANK MATHUR


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PREFACE

The main motive behind the summer training of the MBA program is to provide the

practical aspect of the organizations working environment. The study is the out come of

my project that has been produced as partial fulfillment of the Masters of Business

Administration from Jodhpur Institute of Management, JODHPUR.

This training has helped to visualize and realize about the congruency between the

theoretical learning in the college and the actual practices of management. This overall

project has given me an insight into the actual corporate world apart from the theoretical

environment. It has allowed me to face the world full of ups and downs and to get a

glance of the future corporate world in which we are going to enter.

My summer training project at ING VYSYA LIFE INSURANCE is a complete experience

in itself and it has become an inspirable part of my knowledge of management being

learned in MBA programme.

This project is based on to make comparision between unit linked insurance plan and

mutual funds.


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EXECUTIVE SUMMARY

As a part of MBA I completed my summer training at ING Vysys Life Insurance

company Limited (JAIPUR Branch) for 45 DAYS.

ING Vysya Life Insurance Company Limited a part of the ING Group the worlds largest

financial services provider which entered the private life insurance industry in India in

September 2001.Headquartered at Bangalore, ING Vysya Life is currently present in

246cities and has a network of over 300 branches.

ING is a global financial institution of Dutch origin offering banking, insurance and asset

management to over 60 million private, corporate and institutional clients in over 50

countries. ING operates through three businesses in India, ING Vysya Life Insurance,

ING Vysya Bank and ING Investment Management. ING Vysya Bank is a premier

private sector bank with over 76-year heritage and 1.5 million satisfied customers.

ING Investment Management comprises of two operations: ING Fund - a mid sized

asset management company with a retail investor focus and Optimix - a fund of funds

business.

Firstly I obtained knowledge regarding the Life Insurance market, terms used in it, and

various kinds of transaction running in the market. After having an overview of Life

Insurance market I was assigned the project on comparision of unit linked Insurance

market vs mutual funds

During the survey it was found that most of the customer did not have proper knowledge

regarding Life Insurance concepts, so due to lack of knowledge, they hesitated to buy

the Life Insurance policy, especially that of private sector .


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Life style of people is changing rapidly and every person wants to safe guard their future

by minimizing risk. So the customers should get proper knowledge about Life Insurance

so that they can minimize their risk

Finally, it was a learning experience for me. I came in close contact with the market

trends and learned about the various technicalities. It was a great corporate exposure

for me to introduce myself to the corporate world.

In order to fulfill the objectives of the research the following research methodology was

used

1. Sample universe the sample universe selected was JAIPUR

2. Sample unit the sample unit selected were residents of JAIPUR. The sample

unit were segregated into four segments :

A. Businessmen:

All the people who are running their own business i.e. owners of shoe business,

readymade garments, departmental & general stores, etc. were approached.

B. Professionals:

All the people who have a professional degree & practicing their own profession

i.e. Professionals like CA, doctors, engineers, lawyers, architects etc. were

approached.

C. Govt. employees:

All the people who are employed either by the central or state governments of

India i.e. employees who are working in RSMM Ltd., PWD, AVVNL, BSNL,

Education department (Govt. Schools & colleges), etc. were approached.


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D. Private Employees:

All the people who are employed by privately owned organizations of India i.e.

employees who are working in various private banks (HDFC, ICICI, IndusInd,

and IDBI) & other private firms & companies were approached.

1. Research type : the research type selected here was exploratory type research.

Exploratory research is that research in which facts and figures are found

pertaining to that study of topic which has never being researched before. It was

concerns with investigating an entirely new area of study. Here the objectives of

the study are kept In mind and details fulfilling these objective are explore using

different sources of primary data.

2. Nature of data collection: Primary data was used over here. This is a data

specifically collected for a purpose. There are various sources of primary data

like questionnaires, interviews etc.

3. Research instruments: primary data has to be collected through various researchinstruments. Questionnaires interviews were the research instruments selected

here.


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CONTENTS

Chapter Topic Page No.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

Acknowledgement

Preface

Executive Summary

Contents

Introduction & Scope of the

project Company profile

Introduction to insurance

Introduction to ULIPS

Introduction to mutual funds

Comparision of ULIPS vs MF

Research Methodology

a) What is Research?

b) Objectives

c) Research Design

d) Data Sourcese) Data Collection Techniques

f) Market Segmentation

g) Fieldwork & Sample Design

Data Analysis & Interpretation

Comparative Study

Results

Conclusions

Suggestions/Recommendations

Limitations of the study

Bibliography

Annexure

i

ii

iii

iv


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SCOPE OF THE PROJECT

The scope of the project may be summarized in following points:

1. The topic of the study is Comparison of unit linked plans with Mutual

Funds. The topic itself signifies the importance & scope of the project study.

2. This study is aimed to have the first hand idea about the savings/ investments of

people in various avenues.

3. This study is also aimed to know the general criteria/motive/objective of

investments by the people.

4. This project report will help the organisation in assessing the awareness of

various occupational segments (Businessmen, Professionals, Govt. employees,

Private employees) about Mutual Funds &ULIP. This awareness is estimated in

the form of percentage.

5. This project report will also indicate that in which investment avenue people like

to invest the most.

6. This study will also include the comparative analysis of various investment

avenues available to a prospective investor.

7. The present project report will assist the organisation in knowing the tastes &

preferences of the people for their investments.

8. There may be a number of topics under this subject, which can further be

studied. Some of them are as follows:


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i. To find out the correlation between income of the people & their choice

of investment.

ii. To find out the awareness of SIP (Systematic Investment Plan) in

Mutual Fund among the investors.

iii. To compare the ELSS (Equity Linked Savings Schemes) with other

Tax Saving Instruments.


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Company profile

About ING Group

y ING Group is known for its philosophy of keeping it simple. This thought is the

result of ING Groups 150 years of understanding of customers needs and

fulfilling them.

y ING is a global financial institution of Dutch origin. It has 150 years of experience,

and provides a wide array of banking, insurance and asset management services

in over 50 countries and is trusted by over 60 million customers. Its 1,13,000

employees work daily to satisfy a broad customer base individuals, families,small businesses , large corporations, institutions and governments. The ING

Group has gone from strength to strength year after year and is the world's 13th

largest company*. The ING Group is the world's largest financial institution* with

over US $ 1 trillion# in assets and profits of US $ 8.5 billion in 2005#.

y Over the last 150 years, ING Group has grown to become the largest insurer in

the world*. Today it touches the lives of millions of people across 50 countries.

y ING Group has wide and deep experience in setting up companies in new

markets, which require substantial investments underlining ING's long-term

commitment. In the last 20 years, ING Group has established successful life

insurance companies in 15 countries contributing to the development of

insurance services in these countries successfully.

y Fortune 500, July 2007 has ranked ING Group as the worlds thirteenth largest

company. As per the ranking, ING Group is the worlds largest financial service

provider.

y The Annual Interbrand Report 2007 which ranks global brands across all

categories has ranked ING among the top 100 global brands. INGs ranking has

risen from 85 to 81 compared to last year.


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ING Groups Presencein India

ING operates through three businesses in India, ING Vysya Life Insurance, ING Vysya

Bank and ING Investment Management. ING Vysya Bank is a premier private sector

bank with over 76-year heritage and 1.5 million satisfied customers. ING Investment

Management comprises of two operations: ING Fund - a mid sized asset management

company with a retail investor focus and Optimix - a fund of funds business.

ING Vysya Life - An Overview

ING Vysya Life Insurance Company Limited a part of the ING Group the worlds largest

financial services provider^ entered the private life insurance industry in India inSeptember 2001. Headquartered at Bangalore, ING Vysya Life is currently present in

246cities and has a network of over 300 branches, staffed by 7,000 employees and

over 51,000 advisors, serving over 5.5 lakh customers.

Product Portfolio

ING Vysya Life follows a customer centric approach whiledesigning its products. The Companys product portfolio

offers products that cater to every financial requirement, at

all life stages.

In fact, the company has developed the LifeMaker a simple

tool which can be used to choose a plan most suitable to a

specific customer based on his needs, requirements and

current life stage. This tool helps you build a complete

financial plan for life at every lifestage, whether the

requirement is Protection, Savings, Investment or

Retirement. Suitable products from ING Vysya Life

Insurances product portfolio for each such requirement,

makes selection of your plan an easy exercise.


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The Company aims to make customers look at life insurance afresh, not just as a tax

saving device but as a means to live life to the fullest. It believes in enhancing the very

quality of life, in addition to safeguarding an individual's security.

Distribution Channels

ING Vysya Life has a diversified distribution platform. While Tied Agency remains the

strongest channel, the Alternate Channels business within ING Vysya Life is one of the

fastest growing distribution channels. ING Vysya Life has strengthened its position as

the unparallel leader in the life insurance industry in cooperative banks tie ups. The

company currently has tie ups with 130 cooperative banks across the country. The

Alternate Channels division has Bancassurance, ING Vysya Bank, Corporate Agents

and SMINCE.

The Brand Positioning

In 2007, ING Vysya Life developed its unique brand positioning Mera farz. This

positioning means, ING Vysya Life helps its customers fulfill their responsibilities

towards themselves and their families. This powerful positioning has helped ING Vysya

Life create a distinct identity for itself. The latest brand campaign with a very catchyjingle dwells on how a little planning and a helping hand from ING Vysya life can help

lighten the burden of responsibilities that often come with happy moments and let you

enjoy your life without any worries.

About ING Vysya

ING Vysya (a group terminology) has 3 businesses in India, ING Vysya Life Insurance,

ING Vysya Bank and ING Vysya Mutual Fund. ING Vysya Bank is a premier privatesector bank with a 70-year heritage and 1.5 million satisfied customers. ING Vysya

Mutual Fund is a mid sized asset management company with a retail investor focus


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ING VYSYA LIFE INSURANCE

The worlds largest life insurance company

The worlds largest financial services company

It has got assets of 6200000 crores

It has got 150 years of financial expertise and six crores customers in more than 50

country

The mission of the company is to have the best and the most productive advisors force.

The core values are:

Professional

Entrepreneurial

Trustworthy

Approachable

ING IN INDIA

Shareholders of ING vysya life insurance are:

Gujarat ambuja cement with 14.87%

Exide industries ltd.With 50 %

ENAM group with 9.13%

The rest 26 % remains with ING

ING entered India in 1991

1994- ING barings NV offering investment banking ,corporate finance and other

financial services.

1997- ING insurance representative office

1999- ING investment management pvt. Ltd. Providing mutual fund products2000- ING venture capital

2001- ING vysya life launched

2002- ING buys 44 % stake in vysya bank and merges ING Barings with vysya bank

2003- ING vysya financial services launched


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INGS Mission

To set the standard in helping our customers manage their financial future.

Life insurance players in India

LIC

BAJAJ ALLIANZ LIFE INSURANCE COMPANY LTD.

BIRLA SUN LIFE INSURANCE COMPANY LTD.

HDFC STANDARD LIFE INSURANCE COMPANY LTD.

ICICI PRUDENTIAL LIFE INSURANCE COMPANY LTD.

MAX NEWYORK LIFE INSURANCE COMPANY LTD

MET LIFE INSURANCE COMPANY LTD

KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE COMPANY LTD

SBI LIFE INSURANCE COMPANY LTD

ING VYSYA LIFE INSURANCE COMPANY LTD

TATA AIG LIFE INSURANCE COMPANY LTD

AVIVA LIFE INSURANCE COMPANY PVT. LTD

RELIANCE LIFE INSURANCE COMPANY LTD

SAHARA LIFE INSURANCE COMPANY LTD

BHARTI AXA LIFE INSURANCE COMPANY LTD


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INTRODUCTION TO INSURANCE

After opening up of Indian economy in 1991 there was a huge potential available in

every industry or business. Just like other industry liberalization of the Indian insurancemarket was recommended indicating that market should be to the private sector

competition and ultimately to the foreign private sector competition.

WHAT IS INSURANCE?

The business of insurance is related to the protection of economic value of assets

.Every asset has a value. The asset have been created through the efforts of owner in

the expectation that either through the income generated there from or some other

output some of his needs would be met in the case of a factory or a cow, the

production is sold and income is generated .

There is no direct income. There is a normally expected life time for the asset during

which time is expected to perform. The owner aware of this can so manage of his affairs

that by the end of the life time, a substitute is made available to ensure that the value or

income is not lost. However if the asset gets lost earlier being destroyed or made non

functional through an accident or other unfortunate event, the owner and those deriving

benefits there from, suffer insurance is a mechanism that helps to reduce such adverse

consequences.

Insurance provides us with a sense of financial support especially during that time of

crisis irrespective of the fluctuation in the stock market. It provides for our career goals

right from your childhood years life insurance is all about making sure that our familyhas adequate financial resources to make their plans and dreams come true. It provides

financial protection to help your family or business after your death.


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Insurance is basically a sharing device. The losses to assets resulting from natural

calamities (like fire, flood, earthquake, accidents, etc.) are met out of common pool

contributed by a large number of people who is exposed to similar risks.

CLASSIFICATION OF INSURANCE

1. Life insurance- Life insurance is concerned with making provision for a specific

event happening to the in individual such as death.

2. Non life insurance- Non life insurance is commonly concerned with the provision

for a specific event, which affects a property such as fire, flood, theft etc.

INDIAN SCENARIO

India has traditionally been a high savings oriented country being on par with the thrifty

Japan. Insurance sector in the United States of America is as big in size as the banking

industry. This gives us an idea of how important the sector is. Insurance sector

channelises the savings of people for long term investment. In India this sector will bring

the nations own money for the nation.

The global life insurance stands at $1,521.2 billion, while the non life insurance market

is placed at $922.4 billion.

India takes the 22nd position with US $ 9.93 billion annual premium collections. Out of

one billion people in India only 35 million people are covered by insurance.

Indian insurance market is set to touch $ 25 billion by 2010, on the assumption of 7%

annual growth in GDP.

This has made the sector the hottest one in India after IT. With social security and

security to the public at large being the agenda for opening the sector, the role of the

regulator becomes more serious and that would be carefully watched at every step.


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HISTORY OF INSURANCE

A brief history of the Insurance sector:

The business of life insurance in India in its existing from started in India in the year

1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some

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

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate

the life insurance business.

1928: The Indian Insurance Companies Act enable the government to collect statistical

information about both life and non-life insurance businesses.

1938: Earlier legislation was consolidated and amended by the Insurance Act with the

objective of protecting the interests of the insuring public.

1956: 245 Indian and Foreign insurers and provident societies were taken over by the

Central government and nationalized. LIC formed by an Act of parliament, viz. LIC Act,

1956, with a capital contribution of Rs.5 corers from the government of India.

THE BENEFITS OF INSURANCE

Replacement of income

One prime reason for buying life insurance is to complete the income lost in the event

of untimely death of the life insured. When this regular income stops, the proceedsfrom a life insurance policy can be used to support the family members.


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Maintenance of lifestyle

In case of the death life insured, family members are often hard pressed trying to

arrange for funds that can maintain lifestyle. Life insurance offers protection against

such an unfortunate eventuality.

Expenses due to premature death

Life insurance can play a crucial role to pay off any debt left behind by the person

insured. For example car loans, medical bills, mortgages, credit card payment, etc. are

often left in case of sudden death. These obligations can be met with life Insurance

without any depletion in family assets.

Planning for important events with the cost living going up day by day prudent people

would go for a life insurance as the most cost effective means to ensure that the

important mile stone in their childrens lives are not hampered by the uncertainties of

life.

Investment:

Life insurance is great avenue to help. A charitable cause, or people with philanthropic

desire but short of means, life insurance provides the option to contribute much more

than is possible by the life insured

TYPES OF LIFE INSURANCE

1. Term insurance: It covers the life for a term of 1 or more years. It pays only

death benefits only if the policy holder dies during the period the insurance is in

force. Term insurance generally offers the cheapest form of life insurance. You

can renew most of the term insurance policies for one or more terms even if the

health condition has changed.

2. Whole life insurance: It covers the life for as long as the person lives if his

premiums are paid. The person generally pays the same premium throughout his

life time. Some whole life policies allow to pay the premium for a shorter period


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(15, 20, 25 years). The premium for these policies is higher. There are options in

the market to have a return of premium option in a whole life policy. That means

after a certain age of paying premiums, the company will pay back the premium

to the life assured but the coverage will continue.

3. Money back insurance: The money back plan not only covers your life, it

also assures you the return of a certain percent of the sum assured as cash

payment at regular intervals. It is a savings plan with the added advantage of life

cover and regular cash inflow. This plan is ideal for planning for specials

moments like a wedding, your childs education or purchase of an assets, etc.

Money back plan have participating and nonparticipating versions in the

market.

4. Endowment assurance: Endowment insurance is a level premium plan with

a savings feature. At maturity, a lump sum is paid out equal to the sum assured

(plus dividends in a par policy). If death occurs during the term of the policy then

the total amount of insurance and any dividends (par policy) are paid out.

5. Universal life: This is a flexible life insurance policy and is also market

sensitive. You decide on the several investment options on how your net

premium are to be invested. While the money invested has the potential for

significant growth, such funds are subject to market risks including the loss of the

principle.

6. Unit linked product: Market linked plans or unit linked insurance plans

(ULIP) are similar to traditional insurance policies with the exception that your

premium amount is invested by the insurance company in the stock market.Market linked insurance plans (MLP) are the way to invest mutual funds and

invest in a basket of securities, allowing you to choose between investment

options predominantly in equity , debt or a mix of both (called balanced option).


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INSURANCE TERMS

There are several terms associated with insurance that need to be known by an

individual to understand their impact. Some terms are technical and hence there

might be some effort required in order to understand them properly and then use

them to ones advantage.

Insured

The insurance contract involves the insurer and insured. This means that there is

one party that is giving the insurance and the other party who is getting the cover of

insurance. The insured is the subject matter of the insurance cover. This means that

the person who is insured is the one whose life is covered in life insurance.Every life

insurance policy will have an insured. One can distinguish the insured from the

owner of the policy who is the persone who takes the policy . in many cases , the

owner and the insured might be the same persone as the person who takes the

policy will also be the one whose life is coverd .

Insurer

The insurer is the entity that provides the insurer. The insuance company will be

covering the life and the property of the various people entities. The insurer is one

of the parties that will complete the insurance perpose. The strength of the insurance

company is very important in ensuring growth of the insurance sector.

Beneficial

The beneficial is the person who has to receive the proceeds under the insurance

policy on the occurance of risk. Different people could become a beneficial undervarious circumstances. This will main the beneficial will receive the amount in case

of the death of the insure.

In some cases the insure or the person whose life is covered will receive the pay out

.


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This will happen when there are policy that pay out specific sum on the completion

of certain number of pairs of the policy. If the individual survives for this time period

than the pay out that is specified will be received by him.

Premium

The sum paid by the insured to the insurance company as consideration for

insurance cover. This has to be paid in accordance with the term of the policy. The

premium can be paid monthly, quarterly, half yearly or annually. While the premium

stops after a certain period, the cover on the life of the person will continue for a

longer period.

Surrender value

There may be cases when the person taking the policy is not able to pay the

required amount of premium. The person may like to discontinue the policy .If the

required conditions are met, then there can be a surrender of the policy to the

company. The policy is closed at an early stage and given back to the insurance

company at a price lower than the sum assured. This price is known as the

surrender value.

Paid up value

In some cases when the insurance policy is running the policy holder would not like

to surrender and loss the insurance cover available. There is an option available to

achieve the objective of stopping the payment of premium but keep the insurance

cover. These can be done when the policy is paid to a certain extent and the cover

will be limited to the proportion of the premiums paid till now.

Unit allocationWhen the premium is paid by the investors in unit linked policies a part of it goes to

various expenses and the remaining amount is used to buy units in the fund

specified in the scheme and these will appreciate according to the movement in the

net asset value of the scheme.


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Death benefit

The life insurance company pays the beneficiary the amount that is equal to the sum

assured in case of death of person cover under the policy. This is known as the

death benefit given to those who have been nominated to receive this benefit in case

of the death of the insured.

Top up

Several insurance policies have the facility where the insured can raise the amount

of investment by paying necessary additional amount of premium. Depending upon

the nature of the policy, it can lead to increase in the cover. This facility reduces the

workload and conditions to be fulfilled by the person if he had gone for an additional

policy by paying same amount.

Benefits of life insurance:

1. Superior to any other saving plan life insurance policies offers protection

against the risk of death which is nit available in any other contemporary saving plan. In

the event of death of policy holders the insurance makes available the full sum assured

to the policies holders near and dear once. In comparison any other saving plan would

amount to the total saving accustomed till date. If the death occurs prematurely, such

saving can be much lesser than the sum assured

2. Encourage thriftA saving deposits can easily be withdrawn. The payment of

life insurance premium however is considered sacrosanct payment of interest on

mortgage thus; a life insurance policy in fact brings about compulsory savings and is

viewed with the same seriousness as the payment of interest on mortgage. Thus a life

insurance policy in fact brings about compulsory savings.


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3. Easy settlement and protection against creditors

A life insurance policy is the only financial instrument the proceeds of which can be

protected against the claim of a creditor of the assured by effecting a valid assignment.

4. Administering the legacy for beneficiaries

Speculative expenses can quickly cause the squandered. Several policies have

foreseen this possibility and provide for payments over a period of years or in a

combination of installment and lump sum amount.

5. Ready marketability and suitability for quick borrowing

A life insurance policy can after a certain time period become cost effective that means

to ensure that the important milestone in their childrens lives are not hampered by the

uncertainties of life.

6. Investment

Life insurance is also an investment. Apart from tax benefits which are also allowed by

the govt. of India for investing in life insurance, some life insurance policies offer returns

on investments along with the covert for life. This helps us with long term financial

goals.

7. Hospital cash benefits

Many policies can also provide for covering the hospitalization expenses along with

cover for life.

8. Tax benefit

Under the income tax act, tax relief under section 88 is available for the premium paid

and section 10[10D] benefits are available for the death or maturity or surrender

proceeds from a life insurance policy.


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Issue to the applicant a certificate of registration, renew, modify, withdraw,

suspend or cancel such registration.

Protection of the interest of the policy holder in matters of concerning assignment

of policy, nomination by policy holder, insurable interest, settlement of insurance

claim, surrender value of policy and other terms and condition of contract.

Specifying requisite qualification, code of conduct and practical training for

intermediary or insurance intermediaries and agents.

Specifying the code of conduct for surveyors and loss assessors.

Promoting efficiency in the conduct of insurance business.

Promoting and regulating professional organizations connected with insurance

and re-insurance business.

Levying fees and other charges for carrying out the purpose of this act.

Calling for information from, undertaking inspection of, conducting enquiries and

investigation including audit of the insurers, intermediaries and other organization

connected with the insurance business.

Control and regulation of the rates, advantages, terms and conditions that may

be offered by the insurers in respect of general insurance business not controlled

by the TARIFF ADVISORY COMMITTEE under section 64 U of the insurance act

1938.

Specifying the form and manner in which books of account shall be maintained

and statement of accounts shall be rendered by insurers and other insurance

intermediaries.

Regulating investment of funds by insurance companies.

Regulating maintenance of margin of solvency


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INTRODUCTION TO MUTUAL FUND

MUTUAL FUNDS-MEANING AND DEFINATION:

A Mutual Fund is a pool of money, collected from investors, and is invested according to

certain investment objectives.

A Mutual Fund is created when investors put there money together .It is therefore a pool

of the investors funds. The most important characteristic of a mutual fund is that the

contributors and the beneficiaries of the fund are the same class, namely the investors.

The term mutual means that investors contribute to the pool, and also benefits from the

pool. There are no other claimants to the funds. The pool of funds held mutually by

investors is the Mutual Fund.

A Mutual Funds business is to invest the funds thus collected, according to the wishes of

the investors who created the pool. In many market these wishes articulated as

investment mandates. Usually, the investor appoints professional investment managers,

to manage their funds. The same objective is achieved when professional investment

managers create a product; offer it for investment to the investor .This product represent

a share in the pool, a pre-states investment objective. For example, a Mutual Fund, which

sells a money market Mutual Fund, is actually seeking investors willing to invest in a

pool that would invest predominantly in a money market instruments.

CONCEPT

A Mutual Fund is a trust that pools the savings of a number of investors who share a comm

financial goal. The money thus collected is then invested in capital market instruments su

as shares, debentures and other securities. The income earned through these investmenand the capital appreciation realized is shared by its unit holders in proportion to the numb

of units owned by them. Thus a Mutual Fund is the most suitable investment for the comm

man as it offers an opportunity to invest in a diversified, professionally managed basket

securities at a relatively low cost. The flow chart below describes broadly the working of


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Mutual Fund Operation Flow Chart

There are many entities involved and the diagram below illustrates the organizational

set up of a mutual fund:

ORGANISATION OF A MUTUAL FUND


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Mutual fund schemes may be classified on the basis of its structure & its investment objectiv


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By Structure:

1. Open ended funds:

An open ended fund is one that is available for subscription all through the year. These do

not have a fixed maturity date. Investors can conveniently buy & sell units at Net Asset

Value (NAV) based prices. The key feature of open ended schemes is liquidity.

2. Closed-ended funds:

A closed ended fund has a stipulated maturity period which generally ranging from3 to 15

years. The fund is open for subscription only during a specified period. Investors can invest

in the scheme at the time of the initial public issue and thereafter they can buy or sell the

units of the scheme on the stock exchanges where they are listed. In order to provide an exit

route to the investors, some close-ended funds give an option of selling back the units of the

Mutual Fund through specific repurchase at NAV related prices. SEBI Regulations stipulate

that at least one of the two exit routes is provided to the investor.

3. Interval Funds:

Interval funds combine the features of open-ended schemes. They are open for sale or

redemption during pre-determined intervals at NAV related prices.

By Investment Objective:

1. Growth Funds:

The aim of growth fund is to provide capital appreciation over the medium to long term.

Such schemes normally invest a majority of their corpus in equities. It has been proved thatreturns from stocks, have outperformed most other kind of investments held over the long

term.

Growth schemes are ideal for investors having a long-term outlook seeking growth over a

period of time.


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2. Income Funds:

The aim of income funds is to provide regular and steady income to investors. Such

schemes generally invest in fixed income securities such as bonds, corporate debentures &

govt. securities. Income funds are ideal for capital stability & regular income.

3. Balanced Funds:

The aim of balanced funds is to provide both growth & regular income. Such schemes

periodically distribute a part of their earning & invest both in equities & fixed income

securities in the proportion indicated in their offer documents. In a rising stock market, the

NAV of these schemes may not normally keep pace, or fall equally when the market falls.

These are ideal for investors looking for a combination of income & moderate growth.

4. Money Market Funds:

The aim of money market funds is to provide easy liquidity, preservation of capital &

moderate income. These schemes generally invest in safer short term investments such as

treasury bills, certificates of deposit, commercial paper & inter bank call money. Returns on

these schemes may fluctuate depending upon the interest rates prevailing in the market.

These are ideal for corporate & individual investors as a means to park their surplus funds

for short periods.

Other Schemes:

1. Tax Saving Schemes:

These schemes offers tax rebates to the investors under specific provisions of the Indian

income tax laws as the govt. offers tax incentives for investments in specified avenues.

Investments made in equity linked saving schemes (ELSS) are allowed as deduction u/s

80C of the income tax act, 1961.Investments in these funds would enable the investor to

avail the benefits under clause (xiii) of subsection (2) of section 80C of the Income Tax Act,

1961.Investment made in these schemes up to Rs. 1 lakh by the eligible investor being an

individual or a HUF will qualify for deduction under this section of the act.


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2. Gilt Funds:

They are g-sec (govt. securities) with medium & long term maturity. Securities with one year

maturity are covered under money market funds. These funds have low default risk. The

minimum amount of investment is quite high in these funds so they are beyond the range forsmall investors.

3. Short-term Funds:

These funds invest in bonds & debentures of high quality rated by rating agencies like

CRISIL etc. (of lesser duration viz.18-24 months), g-sec & money market instruments. STP

helps in reducing volatility in the debt market & at the same time providing liquidity & stable

returns.

4. Liquid Funds:

They invest in bonds, call & money market & treasury bills. They provide an ideal investment

option for a period of 2-60 days. They provide an ideal opportunity to earn on amount lying

ideal in current a/c, which would instead generate no return. Unlike the income / bond funds

or the short- term funds there is no interest rate or market risk involved here.

Special Schemes:

a. Industry specific schemes: Industry specific schemes invest only in the industries

specified in the portfolio. The investment of these funds is limited to specific industries like

InfoTech, FMCG & Pharma etc.

b. Index schemes: Index funds attempt to replicates the performance of a particular index

such as BSE Sensex or the NSE

c. Sector Specific Schemes: Sector funds are those, which invest, exclusively in a

specified sector. This could be an industry or a group of industries or various segments such

as A group shares or initial public offerings.


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BENEFITS OF MUTUAL FUNDS:

The advantages of investing in mutual funds are:

y Professional Management

y Diversification

y Convenient Administration

y Growth Potential

y Low Costs

y Liquidity

y Transparency

y Flexibility

y Affordability

y Tax benefits

y Well regulated

1. Professional Management

Mutual Fund provide the services of experienced and skilled professionals, backed by a

dedicated investment research team that analysis the performance and prospects of

companies and selects suitable investments to achieve the objective of the scheme.

2. Diversification

Mutual Fund invests in a number of companies across a broad cross-section ofindustries 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.


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3. Convenient Administration

Investing in a Mutual Fund reduces paper work & helps you avoid many problems such

as bad deliveries, delayed payments & follow up with brokers & companies. Mutual Fund

saves your time & makes investing easy & convenient.

4. Growth potential

Over a medium to long term, Mutual Funds have the potential to provide a higher return

as they invest in a diversified basket of selected securities.

5. Low Costs

Mutual Funds are relatively less expensive way to invest compared to directly investing

in the capital markets because the benefits of scale in brokerage, custodial & other fees

translate into lower costs for investors.

6. Liquidity

In open-ended schemes, the investor gets the money back promptly at NAV based

prices from the Mutual Fund.

In closed-ended schemes, the units can be sold on a stock exchange at the prevailing

market prices or the investor can avail of the facility of direct repurchase at NAV based

prices by the Mutual Funds.

6. Transparency

You get regular information on the value of your investment in addition to disclosure on

the specific investments made by your scheme, the proportion invested in each class of

assets & the fund managers investment strategy & outlook.

7. Flexibility

Through features such as regular withdrawal plans & dividend re-investment plans, youcan systematically invest or withdraw funds according to your needs & convenience.

8. Affordability

Investors individually may lack sufficient funds to invest in high-grade stocks. A Mutual

Fund because of its large corpus allows even a small investor to take the benefit of its


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investment strategy.

10. Tax Benefits

Dividends are tax free for all equity & balanced schemes.

The Union Budget 2005-06 has made investments in ELSS eligible for inclusion in the

Rs. 1 lakh limit that will be deducted while computing taxable income u/s 80C.

An investment in ELSS helps investors to maintain a healthy real return by countering

inflation impact.

11. Well Regulated

All Mutual Funds are registered with SEBI & they function within the provisions of strict

regulations designed to protect interest of investors. The operations of Mutual Funds areregularly monitored by SEBI.


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INTRODUCTION TO ULIPs:

INTRODUCTION

Unit Linked Insurance Plan (ULIP) is one in which the customer is provided with a

life insurance cover and the premium paid is invested in either debt or equity products or a

combination of the two. In other words, it enables the buyer to secure some protection for

his family in the event of his untimely death and at the same time provides him an

opportunity to earn a return on his premium paid. In the event of the insured person's

untimely death, his nominees would normally receive an amount that is the higher of the

sum assured or the value of the units (investments). To put it simply, ULIP attempts to fulfill

investment needs of an investor with protection/insurance needs of an insurance seeker. It

saves the investor/insurance-seeker the hassles of managing and tracking a portfolio or

products

It provides for life insurance where the policy value at any time varies according to the value

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

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

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

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

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

the flexibility which it offers.

As times progressed the plans were also successfully mapped along with life insurance

need to retirement planning. In today's times, ULIP provides solutions for insurance

planning, financial needs, financial planning for childrens marriage planning also can be

done with this.


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Features

y ULIPs are not an investment tool; its actually an insurance product.

y The Feature of an ULIP is to get insurance for say 40 years, u dont need to pay for

40 years, instead its premium paying term is between one and five years.

y One can get insurance cover of up to 50 times of first year premium paid.

y One can also get good returns like a mutual fund.

y After few years, if u found your investment doubled due to market upswing, u can

take back the invested amount and leave the rest with the policy, u can enjoy the

insurance cover with literaly zero investment.

y ULIPs also serve the same function of providing insurance protection against death

and provision of long-term savings, but they are structured differently.

y In a ULIP too, the insurer deducts charges towards life insurance (mortality charges),

administration charges and fund management charges. The rest of the premium is

used to invest in a fund that invests money in stocks or bonds.

y The policyholders share in the fund is represented by the number of units.

y

The value of the unit is determined by the total value of all the investments made bythe fund divided by the number of units.

y If the insurance company offers a range of funds, the insured can direct the company

to invest in the fund of his choice. Insurers usually offer three choices an equity

(growth) fund, balanced fund and a fund which invests in bonds.


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y Insurers love ULIPs for several reasons. Most important of all, insurers can sell these

policies with less capital of their own than what would be required if they sold

traditional policies.

y Since ULIPs are devised to mobilise savings, they give insurance companies an

opportunity to get a large chunk of the asset management business, which has been

traditionally dominated by mutual funds.

Benefits

ULIP provides multiple benefits to the consumer. The benefits include:

y Life protection

y Investment and Savings

y Flexibility

y Adjustable Life Cover

y Investment Options

y Transparency

y Options to take additional cover against

y Death due to accident

y Disability

y Critical Illness

y Surgeries

y Liquidity

y Tax planning


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Mutual fund vs. Unit linked plan

Which is a good product to take? Mutual fund + term insurance or unit linked insurance

plans?

Well it depends on the knowledge level of the buyer, and the smartness of the salesman.

Mutual funds is the 'safety of the principal' guaranteed, plus the added advantage of

capital appreciation together with the income earned in the form of interest or dividend.

Insurance is a provision against risk and it is a device with which man tries to protect

himself from risk in life. The recent development in the financial innovation is Unit Link

Insurance Policy (ULIP), which covers the concept of mutual fund and insurance.

A Unit Link Insurance Policy (ULIP) is one in which the customer is provided with a

life insurance cover and the premium paid is invested in either debt or equity products or a

combination of the two. In other words, it enables the buyer to secure some protection for

his family in the event of his untimely death and at the same time provides him an

opportunity to earn a return on his premium paid. In the event of the insured person's

untimely death, his nominees would normally receive an amount that is the higher of the

sum assured or the value of the units (investments). To put it simply, ULIP attempts to fulfill

investment needs of an investor with protection/insurance needs of an insurance seeker. It

saves the investor/insurance-seeker the hassles of managing and tracking a portfolio or

products.


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Comparision of ULIPS vs MFS

Below is a brief comparision of ULIP (Unit Linked Insurance Product) vs MF (Mutual Funds)

specific to the Indian market.

Primary Objective MFs:

InvestmentsULIPs: Protection + Investments

Investment DurationMFs:

Works out for Medium term, Long Term Investors. Risky for Short Term investors.

ULIPs: Works out for Long Term Investors only.

Flexibility

MFs: Very flexible. Plenty of scope to correct your mistakes if you made any wrong

investment decisions. You can easily shuffle your portfolio in MFs.

ULIPs: Flexibility is limited to moving across the different funds offered with your policy.

Correcting mistakes can turn out to be expensive. Moving funds from one ULIP to an other

ULIP of a different fund house can be expensive.

Liquidity

MFs: Very liquid. You can sell your MF units any time (except ELSS). Some MF's like those

from Reliance have introduced redemptions at ATMs.

ULIPs: Limited liquidity. Need to stay invested for the minimum number of years specified

before you can redeem.

Investment Objective

MFs: MF's can be used as your vechile for investments to achive different objectives. (Eg:

Buying a car three years from now. Downpayment for a home five years from now.

Childrens education 10 years from now. Childrens marriage 15 years from now. Retirement

planning 25 years from now. Medical expenses after retirement 25 years from now)


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ULIPs: ULIPs can be used for achieving only long term objectives (Children education,

Childrens marriage, Retirement planning)

Tax Implications

MFs: All investments in MF's don't qualify for section 80C. Only investments in ELSS qualify

for 80C.

ULIPs: Provide Tax Benefits under section 80C.

MFs: Returns on equity MF's are exempt from long term capital gains tax. (Unless tax laws

change in the future).

ULIPs: We are moving from EEE to EET. No clarity if ULIPs will be taxed under EET.

MFs: Tax liabilities when moving across from debt to equity funds.(Returns from debt MF's

are taxed.)

ULIPs: Very flexible in moving between equity and debt funds (not tax implications until

maturity of the policy).

Strings Attached (fine print)

MFs: None so ever. At most you pay a small exit load if any.

ULIPs: Some strings attached for your policy to be in effect. Minimum number of premiums

need to be paid. Minimum fund balance need to be always maintained. (I personally do not

like policies which say pay three years premium and get insurance cover for the next 25

years since there are a lot of ifs and butts involved. A lot of assumptions made and nothing

is in your hand, it could turn out your fund balance might be exhausted after just 12 years of

insurance cover).

IN BRIEF:

Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual fundsin terms of their structure and functioning. As is the case with mutual funds, investors in

ULIPs are allotted units by the insurance company and a net asset value (NAV) is declared

for the same on a daily basis.

Similarly ULIP investors have the option of investing across various schemes similar to the


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ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and

debt funds to name a few. Generally speaking, ULIPs can be termed as mutual fund

schemes with an insurance component.

However it should not be construed that barring the insurance element there is nothing

differentiating mutual funds from ULIPs.

Despite the seemingly comparable structures there are various factors wherein the two

differ.

In this article we evaluate the two avenues on certain common parameters and find out how

they measure up.

1. Mode of investment/ investment amounts

Mutual fund investors have the option of either making lump sum investments or investing

using the systematic investment plan (SIP) route which entails commitments over longer

time horizons. The minimum investment amounts are laid out by the fund house.

ULIP investors also have the choice of investing in a lump sum (single premium) or using

the conventional route, i.e. making premium payments on an annual, half-yearly, quarterly ormonthly 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 contributionthereby ensuring that his surplus funds are gainfully invested; conversely an individual faced

with a liquidity crunch has the option of paying a lower amount (the difference being

adjusted in the accumulated value of his ULIP). The freedom to modify premium payments

at one's convenience clearly gives ULIP investors an edge over their mutual fund

counterparts.


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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' expensestructures on ULIP offerings. The only restraint placed is that insurers are required to notify

the regulator of all the expenses that will be charged on their ULIP offerings.

3. Portfolio disclosure

Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis,

albeit most fund houses do so on a monthly basis. Investors get the opportunity to see

where their monies are being invested and how they have been managed by studying the

portfolio.

There is lack of consensus on whether ULIPs are required to disclose their portfolios. During

our interactions with leading insurers we came across divergent views on this issue.


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While one school of thought believes that disclosing portfolios on a quarterly basis is

mandatory, the other believes that there is no legal obligation to do so and that insurers are

required to disclose their portfolios only on demand.

Some insurance companies do declare their portfolios on a monthly/quarterly basis.

However the lack of transparency in ULIP investments could be a cause for concern

considering that the amount invested in insurance policies is essentially meant to provide for

contingencies and for long-term needs like retirement; regular portfolio disclosures on the

other hand can enable investors to make timely investment decisions.

ULIPs vs Mutual Funds

ULIPs Mutual Funds

Investment amounts

Determined by the

investor and can be

modified as well

Minimum investment

amounts are determined

by the fund house

Expenses

No upper limits,

expenses determined

by the insurance

company

Upper limits for

expenses chargeable to

investors have been set

by the regulator

Portfolio disclosure Not mandatory*

Quarterly disclosures are

mandatory

Modifying asset

allocation

Generally permitted for

free or at a nominal

cost

Entry/exit loads have to

be borne by the investor

Tax benefits

Section 80C benefitsare available on all

ULIP investments

Section 80C benefits are

available only oninvestments in tax-saving

funds

* There is lack of consensus on whether ULIPs are required to disclose their portfolios.

While some insurers claim that disclosing portfolios on a quarterly basis is mandatory,


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others state that there is no legal obligation to do so.

4. Flexibility in altering the asset allocation

As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are

largely comparable. For example plans that invest their entire corpus in equities (diversified

equity funds), a 60:40 allotment in equity and debt instruments (balanced funds) and those

investing only in debt instruments (debt funds) can be found in both ULIPs and mutual

funds.

If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt

from the same fund house, he could have to bear an exit load and/or entry load.

On the other hand most insurance companies permit their ULIP inventors to shift

investments across various plans/asset classes either at a nominal or no cost (usually, a

couple of switches are allowed free of charge every year and a cost has to be borne for

additional switches).

Effectively the ULIP investor is given the option to invest across asset classes as per his

convenience in a cost-effective manner.

This can prove to be very useful for investors, for example in a bull market when the ULIP

investor's equity component has appreciated, he can book profits by simply transferring the

requisite amount to a debt-oriented plan.

5. Tax benefits

ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This

holds good, irrespective of the nature of the plan chosen by the investor. On the other hand

in the mutual funds domain, only investments in tax-saving funds (also referred to as equity-

linked savings schemes) are eligible for Section 80C benefits.


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Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example

diversified equity funds, balanced funds), if the investments are held for a period over 12

months, the gains are tax free; conversely investments sold within a 12-month period attract

short-term capital gains tax @ 10%.

Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-

term capital gain is taxed at the investor's marginal tax rate.

Despite the seemingly similar structures evidently both mutual funds and ULIPs have their

unique set of advantages to offer. As always, it is vital for investors to be aware of the

nuances in both offerings and make informed decisions.

Various Schemes

However, there are some schemes in which the policyholder receives the sum assured plus

the value of the investments. Various schemes have been tailored to suit different customer

profiles and, in that sense, offer a great deal of choice. The advantage of ULIP is that since

the investments are made for long periods, the chances of earning a decent return are high.

Just as in the case of mutual funds, buyers who are risk averse can buy debt schemes while

those who have an appetite for risk can opt for balanced or equity schemes.

COMPARISION OF CHARGES:

If there is an investment of Rs.60,000 every year in a mutual fund of a leading fund house

and also the same amount in ULIPS of HDFC, ICICI and BAJAJ ALLIANZ. The following are

the charges are considered.

MFS

Loading charges = 2.25%

Fund Management Charge = 2.50%


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HDFC Unit Linked Endowment Plus

Loading charges = 60% first year, 1% from second year


Admin charge = Rs.240 per annum

Loyalty bonus = 0.1% each year

Bajaj Allianz Unit Gain Plus

Loading charges = 24% first year, 3% from second year



ICICI Lifetime Plus

Loading charges = 25% first year, 25% second year, 3% third and fourth year, 1% from fifth

year



If the investments grew by 10%, the following is what the returns would look like if all the

charges are being considered.

* The returns from HDFC Unit Linked Endowment Plus will beat MF returns by 9TH YEAR

* The returns from Bajaj Allianz Unit Gain Plus will beat MF returns by 11TH YEAR

* The returns from ICICI Prudential Lifetime Plus will beat MF returns by 12TH YEAR


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CONCLUSION

On the long run (10+ years), ULIPs are infact cheaper than MFs in terms of charges. Hidden

charges which are not quiet evident to the eye like fund management charge eat up a major

portion of returns in MFs making them more expensive than ULIPS over time.

Example: Pension Plan vs Mutual Funds

There is a query asked by a investor that whether he would be better off investing in a

pension plan offered by a life insurance company or investing in mutual funds. Given below

is an analysis on the options available to the investor.

Set of Variables.

The clients age is 38 years and he would like to retire 22 years hence i.e. at the age

of 60 years

The client would like to invest an amount of Rs 1,000,000 (Rs 1 m) each year for

three years. In total, he will invest an amount of Rs 3 m over 3 years.

The client has been suggested a single premium plan of Rs 1 m with additional top-

ups worth Rs 1 m p.a. (per annum) for the following two years. In all, the client would

be paying Rs 3 m over the 3-yr period.

The client has a high-risk appetite and would like to remain invested in equities

throughout the tenure of the pension plan.

The client has a well-diversified portfolio including mutual funds and stocks.

Based on the information, there is a likely retirement solution for the investor.


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Let us first take a look at how investments in the unit linked pension plan (ULPP) pan out.

Pension plan: Preparing for the future

Investment

amt (Rs)

One-time

charge (%)

Admn.

Charges (Rs)*

Fund Mngt

Charges (%)

Investment

Tenure (Yrs)

Net maturity

Value (Rs)

1,000,000 2.50 180 0.80 22 18,400,000

1,000,000 2.50 180 0.80 21

1,000,000 1.00 180 0.80 20

*Administration charges are subject to 5.00% inflation per annum.

Investments in unit linked pension plan (ULPP)

If the client decides to buy the pension plan, then he would be paying Rs 1,000,000 in the

first year. Since this is a single premium plan, one-time charges on the same are 2.50% (i.e.

in the first year). In other words, Rs 25,000 would be deducted from the clients single

premium amount and the remaining amount (i.e. Rs 975,000) would be invested in the

100% equity ULPP option. This amount will remain invested for the entire 22-yr tenure.

The charges for any additional top-ups in the second year too would be to the tune of

2.50%. Similar to the first year, Rs 25,000 would be deducted from the second years top-upamount. So Rs 975,000 would be invested over 21 years.

One-time charges for any top-ups from the third year onwards fall to 1% for the year.

Therefore, only Rs 10,000 (i.e. 1% of Rs 1,000,000) would be deducted and the remaining

amount would be invested. The third year amount (Rs 990,000) will remain invested for a

20-yr period (i.e. time to maturity).

Fund management charges (FMC) for managing equities in the given ULPP are 0.80% p.a.Administration charges are assumed to be Rs 180 p.a. (increasing at an assumed inflation

rate of 5.00%).

As can be seen from the table above, assuming a compounded growth rate (CAGR) of 10%


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p.a. over a 22-Yr tenure, the clients investments will grow to approximately Rs

18,400,000.As against the ULPP given above, let us now analyse how investments in a

mutual fund would have worked out over a similar tenure.

How do mutual funds fare?

Investment

amt (Rs)

Entry load

(%)

Fund Mngt

Charges (%)*

Investment

Tenure (Yrs)

Net maturity

Value (Rs)

1,000,000 2.25 2.00 22 15,240,000

1,000,000 2.25 2.00 21

1,000,000 2.25 2.00 20

*FMC is assumed to be 2.00% for the first 5 years, 1.75% for the next 5 years and 1.50%the remaining tenure.

Investments in a mutual fund

Similar to a ULPP, the client would invest Rs 1,000,000 p.a. for 3 years in a mutual fund

scheme. However, unlike a one-time initial charge associated with the ULPP above, mutual

funds usually have an entry/exit load on their schemes. Assuming an entry load of 2.25% for

each of his three annual investments (of Rs 1,000,000), the net amount invested would bedrawn down by Rs 22,500 (i.e. 2.25% of Rs 1,000,000) each year for the initial three years.

We have also assumed a decreasing FMC on the mutual fund schemes- the assumption

here is it would be 2.00% for the first 5 years, 1.75% for the next 5 years and 1.50% for the

remaining period thereafter. The decreasing FMC assumption is based on the fact that as

the corpus for a mutual fund scheme grows over a period of time, economies of scale come

into play. This helps the mutual fund spread its costs over a larger corpus, thereby reducing

its overall cost of managing the fund.

As with the ULPP, assuming a 10% rate of growth over a 22-yr period, the mutual fund

investments would have grown to approximately Rs 15,240,000. The corpus generated by


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ULPP is higher than the mutual fund corpus by Rs 3,160,000 (i.e. 20.73%).

The reason why ULPP scores over mutual funds is because of a low FMC. The FMC on the

ULPP under review is 0.80% throughout the tenure as compared to the mutual fund FMC,

which is in the 1.50%-2.00% range. Over the long term, FMC makes a significant impact by

reducing the corpus available for investments. In other words, lower the FMC, higher the

investible surplus and vice-versa.

In our view therefore, the client would be better off investing his money in the ULPP.

However, analysis on pension plans versus mutual funds would be considered myopic if

deliberated only from the expenses point of view. There are some inherent advantages as

well as disadvantages that both ULPP and mutual fund investments offer.

1. Maturity proceeds

The maturity payout differs for ULPP as compared to mutual funds. Only up to one-third of

the maturity proceeds are allowed to be withdrawn under the pension plan; the remaining

two-third amount has to be compulsorily invested in an annuity from a life insurance

company. The annuity helps generate an income stream for a time period as specified by

the individual. Conversely, in an open-ended structure, equity funds allow the individual to

withdraw the entire corpus whenever he wants.

2. Diversification

Mutual funds offer the benefit of diversification across various parameters like fund

management style (aggressive vs. conservative) and investment strategy (e.g. large-cap

orientation, mid-cap orientation, value style of fund management, growth style). This level of

diversification is not possible with the ULPP under consideration. Also, in case an individual

feels that a particular mutual fund has not lived up to expectations, then he can redeem his

investments in that particular scheme and invest in another scheme that fits into his criteria

(i.e. modify his portfolio). The same is not entirely possible with a ULPP- since the individual

has already invested his entire available savings into only one plan.


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3. Track record

Several equity funds have a track record to boast of. A good track record helps individuals

identify mutual funds that have performed well across time horizons as well as market

phases.

However, the same is not the case with unit linked insurance plans, which are a recent

phenomenon. While some of them may have done well over the short time period that they

have existed, we would like to evaluate their performance over a longer time frame of at

least 5 years before giving a conclusive view.

So what is the bottom line? As can be seen from our calculations and analysis, the client is

better off investing in the ULPP as opposed to equity funds; but of course one needs to keep

in mind the inherent disadvantages of ULIPs as mentioned above.

ADVANTAGES OF ULIPS OVER MUTUAL FUNDS:

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

2. Best suited for medium risk taking individuals who wish to invest in equity and debt

funds (at least 40% or higher exposure to debt).

3. No additional tax burden for those investing mainly in debt unlike in MFs.


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RESEARCH METHODOLOGY

What is Research?

Research is a scientific & systematic search for pertinent information on a specific topic. It

an art of scientific investigation. Research is a voyage of discovery. It is also said to be t

pursuit of truth with

The role of research in several fields of applied economics, whether related to business or

economy as a whole, has greatly influenced in modern times. The increasing complex natu

of business & government has focused attention on the use of research in solving problems.

The stages which are there in research process are as follows:

1. Problem formulation or Objectives of the Study

2. Preparation of the research design

3. Data Sources

4. Data Collection Techniques

5. Market Segmentation

6. Fieldwork & Sample Design

7. Data Analysis & Interpretation

8. Developing Logical Conclusion

1. Objectives of the Study-

The major objective of the project was to comprise unit linked insurance plans with mutu

funds.


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2. Preparation of the Research Design-

A research design is the arrangement of the conditions for collection & analysis of dat

Actually it is the blue print of research project. The research design is as follows:

Descriptive Research

a. Survey Method

b. Questionnaire Method

3. Data Sources-

The data collection process was carried out in various stages. These stages can be clubbed

under two major heads.

1. Primary Source-Survey

2. Secondary Sources

1. Primary Source-Survey:

A random survey was carried out while going out to contact the respondents.

2. Secondary Sources:

Here the data collection tools were: directories, special publications, yellow pages, etc.

There were still many such potential clients who were not listed in such publication so we

had to find out about them through personal references & by generating leads from the

various clients who gave us the names of various influential people.

4.Data Collection Techniques-

The Data was collected through questionnaire & telephone interviewing. The data collecti

period was 45 days i.e. from 22 JUNE, 2009 to 5 August, 2009


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Questionnaire:

The data was collected on a printed questionnaire, in which questions were asked in a

logical order. Each question has a specific meaning. The data analysis is based on the data

collected through these questions.

5. Market Segmentation-

The market segmentation was done keeping in mind what types of clients were available in

the market. These segments are namely:

A. Businessmen

B. Professionals

C. Govt. employees

D. Private employees

Each Segment is clearly defined as follows:

A. Businessmen:

All the people who are running their own business i.e. owners of shoe business,

Readymade garments, departmental & general stores, etc. were approached.

B. Professionals:

All the people who have a professional degree & practicing their own profession i.e.

Professionals like CA, doctors, engineers, lawyers, architects etc. were approached.

C. Govt. employees:

All the people who are employed either by the central or state governments of India i.e.

employees who are working in RSMM Ltd., PWD, AVVNL, BSNL, Education

department (Govt. Schools & colleges), etc. were approached.

D. Private Employees:

All the people who are employed by privately owned organizations of India i.e.

employees who are working in various private banks (HDFC, ICICI, IndusInd, and IDBI)


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& other private firms & companies were approached.

6. Fieldwork & Sample Design-

Data collection for this project was not an easy job without clearly identifying the exact arewhich have to be included in the data gathering exercise.

For the purpose of sampling, following steps were used:

i. Defining the population or the universe

ii. Developing a sampling frame

iii. Selecting the sampling procedure

iv. Determining the sample size

v. Selecting the specified sample member

These steps have been explained below one by one:

i. The Universe:The universe for theresearch is JAIPUR city.

ii. The sampling frame: The sampling frame may be defined as the listing of the gener

components of the individual unit that comprise the defined population. For this project t

sampling frame was all the businessmen, professionals, govt. employees & priva

employees of JAIPUR (urban).

Businessmen Various shops & Trade houses

Professionals Various Associations

Govt. employees Various Govt. Offices

Private employees Various Privately owned firms

iii. Sampling procedure: Sampling procedure used in the project is non probabili


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sampling. A purposive type of sampling was done and the required information w

collected through convenience and judgmental sampling.

iv. The sample size: The sample size when the complete data was collected came out to

120. The sample was designed as follows:

Businessmen 30

Professionals 30

Govt. Employees 30

Private Employees 30

Sample Size 120

v. The data: The data was gathered by moving around in the field. This data added up to

the already existing database (through references) which was available with us in the form

of secondary data as directories & walk-ins.

Non-probability Sampling

Judgmental

Sampling

Convenience


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Data Analysis & Interpretation:

Analysis of the data was done by drawing inferences through what was collected as inp

from the respondents. The data analysis & interpretation part is dealt in detail on the ne

page.

Interpretation was given on the basis of data analysi

DATA ANALYSIS

The data has been collected from various segments of the market on a random basis. The

data was collected via a questionnaire in which different questions were asked in a logical

order. The data has been analyzed as follows:

Market Segmentation: The entire population has been categorized into four

segments. 30 respondents are sampled from each of the segment. In this way the

sample size comes to be 120. These segments are:

S.No. Segment No. of respondents

1. Businessmen 30

2. Professionals 30

3. Govt. Employees 30

4. Private Employees 30

Sample Size 120


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Table 1: Segment wise Savings Analysis:

Avg.

savings

(p.a.)

Professionals

Total=30

Businessmen

Total=30

Govt.

Employees

Total=30

Private

Employees

Total=30

Below

10%9 13 8 5

11-20% 3 8 7 10

21-30% 13 4 8 11

31-40% 0 3 5 1

Above

40%5 2 2 3

0

5

10

15

20

25

3035

Market segmentation


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1. The following pi-chart & graph shows that out 30 professionals:

.

y 30% people have savings up to 10% of their income.

y 10% people have savings between 11-20% of their income.

y 43.33% people have savings between 21-30% of their income.

y None of the people have savings between 31-40% of their income.

y 16.67% of the people have savings above 40% of their income


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2.The following pi-chart & graph shows that out 30 Businessmen:

y 43.33% people have savings up to 10% of their income.



y 10% people have savings between 31-40% of their income.

y 6.67% of the people have savings above 40% of their income.


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3.The following pi-chart & graph shows that out 30 Govt. Employees:





y 6.67% of the people have savings above 40% of their income.


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4.The following pi-chart & graph shows that out of 30 Private Employees:





y 10% of the people have savings above 40% of their income.


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Table 2: The investment option in which saving/investment is being done by different

segments:--

Investment

options

Professionals

Total=30

Businessmen

Total=30

Govt.

Employees

Total=30

Private

Employees

Total=30

Bank

deposit3 2 5 2

Life

insurance16 10 16 5

Recurring

deposit1 2 4 1

Shares/MF 6 7 2 18

others 4 9 3 4


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The following pi-chart & graph shows that out of 30 Professionals:

y 10% people have invested in Bank Deposit.

y 53.33% people have invested in Life Insurance.

y 3.33% people have invested in Recurring Deposit

y 20% people have invested in Shares/MF.

y 13.33% of the people have. invested in others avenue.


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The following pi-chart & graph shows that out of 30 Businessmen:

y 6.67% people have invested in Bank Deposit.



y 23.33% people have invested in Shares/MF.

y 30% of the people have. invested in others avenue.


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The following pi-chart & graph shows that out of 30 Govt. Employees:




y 6.67% people have invested in Shares/MF.

y 10% of the people have. invested in others avenue.


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The following pi-chart & graph shows that out of 30 Private Employees:




y 60% people have invested in Shares/MF.

y 13.33% of the people have. invested in others avenue.


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Table 3: Rating to investment instruments:--5 means most preferred & 1 means least

preferred.

Investment

options

Professionals

Total=30

Businessmen

Total=30

Govt.

Employees

Total=30

Private

Employees

Total=30

Mutual

funds2 2 1 3

Bank

deposit5 4 5 2

ULIPS 4 3 2 4

Recurring

deposits1 1 4 1

shares 3 5 3 5


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The following pi-chart & graph shows that:

y Bank Deposits are most preferred.

y Recurring Deposit are least preferred.

---- By professionals


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y Shares are most preferred.


---- By Businessmen


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y Bank Deposits are most preferred.

y Mutual Funds are least preferred.

---- By Govt. Employees


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y Shares are most preferred.


---- By Private employes


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Table 4: While selecting the policy, the most influence factor selected by different

segments:-----

Influence

factors

Professi

Documents

ING Vysya Life Repaired) Mayank