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PROJECT REPORT
ON
“ULIPS v/s Mutual Fund” as an investment option
MBA (2009-2011)Under the Supervision of-
Ms. Jyoti Sharma (Faculty, PCTE)
Mr. Sarbjit pal (ASM, HSBC Investdirect)
Submitted by-
Maninder Vadhrah
Punjab College of Technical Education
Ludhiana
Acknowledgement1
“Gratitude is not a thing of expression, it is more a matter of feeling”.
In this present world of competition there is a race of existence in which those who are having
will to come forward will succeed. Project is a bridge between practical and theoretical working,
with this will I have joined the project. I really wish to express my gratitude towards all those
people who have helped me.
I am really indebted to Mr. Sarbjit pal (ASM, HSBC Investdirect) Ludhiana, for his kind
hearted support and expert advice in the completion of the project.
I am also very thankful to Ms. Jyoti Sharma (Faculty, PCTE) for her timely guidance,
supervision & encouragement that have helped me to get this golden opportunity and who
provided me her expert advice, inspiration & moral support in spite of her busy schedule &
assignments, has mainly provided my understanding of this project.
Last , but not the least, I say only this much that all are not to be mentioned but none is forgotten
and I will like to extend my special thanks and gratitude to my parents who always encourage me
in pursuit of excellence.
2
Abstract
There is recent controversy between SEBI and IRDA regarding the ULIPs to be treated as
insurance product. Generally investors are confused between ulips and mutual fund. So in this
project the between both the investment potion was analyzed and it is also determined that which
is more suitable for the investors.
Ulips are life insurance policies which offer a mix of investment and insurance. Mutual Fund is a
trust that pools the savings of a number of investors who share a common financial goal. The
money thus collected is then invested in capital market instruments such as shares,
debentures and other securities.
In accordance with the requirement of MBA course I have summer training project on the
topic “ULIPS v/s Mutual fund” as an investment option. The main objective of the research
project was to study the two instruments and make a detailed comparison of the two.
For conducting the research project sample size of 100 customers of selected. The information
regarding the project research was collected through the questionnaire formed by me which
was filled by the customers there.
Ms. Jyoti Sharma Maninder Vadhrah
(Faculty PCTE) (MBA 2C)
3
Certificate 1
This is to certify that report entitled “ULIPs v/s Mutual fund” as an investment option among the
investors of Ludhiana is submitted for the degree of MBA in subject of summer training report, is
a bonifide research report carried out by Maninder kaur Vadhrah, PCTE student under my
supervision & no part of this has been submitted for any other degree.
The assistance and help received for the course of investigation have been fully acknowledged
Ms. Jyoti Sharma
(Faculty Advisor)
4
Content Page no.
PART A
5
Introduction to Corporate and briefing about group companies
6
Historical Background of the Group: -
The HSBC Group is named after its founding member, the Hongkong and Shanghai Banking
Corporation Limited, which was established in 1865 to finance the growing trade between
Europe, India & China. The inspiration behind the founding of the bank was Thomas Sutherland
a scot who was then working for the Peninsular and Oriental Steam Navigation Company. He
realized that there was considerable demand for local banking facilities in Hong Kong and on the
China coast and he helped to establish the Bank, which opened in Hong Kong in March 1865 and
in Shanghai a month later.
Soon after its formation the bank opened agencies and branches around the world. Although that
network reached as far as Europe and North America, the emphasis was n building up
representation in China and the rest of the Asia- Pacific region.
HSBC was a pioneer of modern banking practices in a number of countries. In Japan, where a
branch was established in 1866, the bank acted as adviser to the government on banking and
currency. In 1888, it was the first bank to be established in Thailand, where it printed the
country’s first banknotes.
From the outset trade finance was a strong feature of the local and International business of the
bank, an expertise that has been recognized throughout its history. Bullion, exchange, merchant
banking and note issuing also played an important part. By the 1880s, the bank was acting as
banker to the Hong Kong government and also participated in the management of British
government accounts in China, Japan, Penang and Singapore. In 1874 the bank handled China’s
first public loan and thereafter issued most of China’s public loans.
Introduction to HSBC: -
We are the world’s local Bank.
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Headquarters in London, HSBC is one of the largest banking & financial services organization in
the world. HSBC’s international network comprises over 9500 offices in 76 countries &
territories in Europe, the Asia-Pacific region, the Americas, the Middle East & Africa. With
listings on the London, Hong Kong, New York, Paris & Bermuda stock exchange share in HSBC
holdings places are held by nearly 200,000 shareholders in some 100 countries & territories. The
shares are traded on the New York Stock Exchange in the form of American Depository
Receipts.
Vision Statement
To become the preferred long term financial partner to a wide base of customers whilst
optimizing stakeholders value!
Mission Statement
To establish a base of 1 million satisfied customers by 2010. We will create this by being a
responsible and trustworthy partner!
Names and Location of group companies : -
Latin America
1) HSBC Mexico SA
2) HSBC Bank Brazil SA, Banco Multiplo
3) HSBC Bank Argentina SA
Asia Pacific
1) The Hongkong and Shanghai Banking Corporation Ltd
2) Hang Seng Bank Ltd
3) HSBC Bank (China) Company Ltd
4) HSBC Bank Malaysia Berhad
Middle East
1) HSBC Bank Middle East Ltd
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2) HSBC Bank Egypt SAE
3) The Saudi British Bank
North America
1) HSBC Bank USA Inc
2) HSBC Finance Corporation
3) HSBC Bank Canada
Europe
1) HSBC Bank plc
2) HSBC France
3) HSBC Trinkaus und Burkhardt AG
The HSBC Group in India: -
The HSBC Group in India is represented by several entities including The HongKong and
Shanghai Banking Corporation Limited which offers a full range of banking and financial
services to its over 2.8 million customers in India through its 47 branches and 170 ATMs across
26 cities.
HSBC is one of India’s leading financial services groups, with over 34,000 employees in its
banking, investment banking and capital markets, asset management, insurance broking , two
global IT development centres and six global resourcing operations in the country.
The Bank is the founding and a principal member of the HSBC group which, with over 9,500
offices in 85 countries and territories and assets of US $2,547 Billion at 30 June 2008, is one of
the world’s largest banking and financial services organizations.
9
Table 1(a):-Group Companies in India: -
S.No. Companies Year of
Commencement of
operations in India
1. The Mercantile Bank of India, China & London 1853
2. The Hongkong & Shanghai Banking Corporation Limited (HBAP)
1867
3. HSBC Securities & Capital Markets (India) Pvt. Ltd. (HBAP)
1995
4. HSBC Private Equity Management (Mauritius) Limited (Indialiaison Office)
1995
5. HSBC Electronic Data Processing India Pvt. Ltd. (HDPI) 2000
6. HSBC Primary Dealership (India) Pvt. Ltd. (HCPD) 2001
7. HSBC Professional Services (India) Pvt. Ltd. (HPSI) 2001
8. HSBC Software Development (India) Pvt. Ltd.(HSDI) 2002
9. HSBC Asset Management (India) Pvt. Ltd. 2002
10. HSBC Insurance Brokers (India) Pvt. Ltd. 2003
11. HSBC Operations & Processing Enterprise (India) Pvt. Ltd. (HOPE)
2003
12. Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd.
2008
Products/Services and brands : -
Through an international network linked by advertisement techniques, rapidly growing
e-commerce capability, HSBC provides a comprehensive range of financial services like-
1) Personal financial services
2) Commercial Banking
3) Corporate Banking
4) Investment Banking
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Personal Financial Services (PFS): -
HSBC India offers a wide range of competitively priced services & products to over 1.75 million
individual resident Indians as well a Non-resident Indian customers across India, USA, UK,
Middle East & South East Asia. HSBC’s 150 year presence in India allows it to enjoy the
advantage of deep rooted knowledge of local markets & customs. This has lead to development of
products & services, which are attuned to the financial needs of Indians in the cities where HSBC
operatives. The HSBC brand is associated with core values such as transparency, trust & honesty.
These factors enable HSBC India to remain highly competitive & at the leading edge of the retail
& commercial banking market in the country.
The distribution network in India consists of 47 branches in 26 cities supported by 170 ATMs at
142 locations. In addition, self service banking channels, such as Internet Banking & a 24 hour
centralized all India Call Centre provide a strong backbone to the distribution capabilities. A
second load balancing Call Centre became operational in January 2005 at HSBC Operations &
Processing Enterprise (India) Private Limited, Chennai Customers can apply for all products
& services online at www.hsbc.co.in
The bank offers a complete suite of products & services including HSBC Premier
International, HSBC Premier, Power Vantage, Savings & Current Accounts, International
Debit Cards & Term Deposits in addition to consumer loan products like
International Credit Cards, Mortgage, Personal Loans, Educational loans & Overdrafts.
HSBC is the 6th largest credit card issuer in India with over 1.3 million cards in force.
Premier & mid market customers have access to comprehensive Financial Planning &
HSBC is a market leader in the provision of Wealth Management services. In
2005, HSBC was the largest distributor of Retail Mutual Funds in India, & the biggest
sales channel for Banc assurance partner TATA AIG.
Non-Resident Indians (NRI’s) constitute 56% of the Bank’s deposit base. The banking
needs of NRIs are fulfilled from branches in India & 11 NRI centers abroad. We have
over 84,000 NRI Customers, & have started referring customers to Financial Planning
Managers & the Private Bank in the host countries, to address their needs for investment
products. A free remittance service is offered between accounts held by NRIs with HSBC
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overseas & onshore. In 2006, an International Banking Centre was established
facilitate cross border business referrals.
In October 2005, HSBC launched an onshore Private Banking proposition branded HSBC
Private Banking. The proposition targets clients with minimum assets of INR 25 M &
encompasses asset classes such as Real Estate, Equity Derivatives & Commodities. This is an
addition to Fixed Income & Equities, which are already being offered. The proposition uses
“Active Advisory” as its cornerstone & key differentiator.
The Bank has sought RBI approval to establish a separate consumer finance branch network
under a non banking financial institution, which will distribute personal loans & ancillary
products to a broader segment of the Indian consumer base than is currently served by the Bank’s
existing product portfolio. The personal loan product is being piloted through the bank
branch network & initial results are promising.
Wealth Management & Branch Banking: -
HSBC has 47 branches Pan-India across 26 locations wealth Management services are
delivered to customers through qualified Wealth Management across each of these branches.
Wealth Management helps customers develop & execute a realistic & practical long
term savings, investments & protection plans by investing in mutual funds, bonds & purchase of
insurance products manufactured by TATA AIG.
Qualified, trained & accredited Wealth Management assist customers in charting a road map
to achieve their individual financial goals & protect their family from unforeseen eventualities
keeping in mind their available resources & based on each customers independent risk
profile. Wealth Management services is currently offered to HSBC Premier & Power
Vantage customers.
Commercial Banking: -
HSBC is a leading provider of financial services to small, medium-sized and middle-market
enterprises. The Group has over 43,000 such customers in proprietors India, including sole,
clubs and associations, incorporated businesses companies. Commercial and publicly quoted
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Banking provides a full range of banking services to these customers including multi-currency
business accounts, payment and cash management, trade services, factoring and a range of
borrowing solutions.
In India, Commercial Banking has a presence in 47 branches covering 26 key cities and for the
convenience of our customers, a multi channel service including Internet and Phone banking. For
SME customers, HSBC offers the complete range of transaction baking services as well as
unsecured loans and loans for and against property. The services are supported by a large Sales
and Relationship Management team in key locations across the country India is the first country
in the HSBC Group where Commercial Banking lends to Microfinance Institutions, thus
providing indirect funding to hundreds of small business owned and run by members of
underprivileged sections of society. A dedicated unit has been formed to focus on
Microfinance and other Priority Sector institutions, with a view to further reach out to the
marginalized and under banked.
Factoring: -
HSBC India offers a comprehensive range of Factoring and Supply Chain Finance Solutions,
which include the following products:
For Vendors/Suppliers/Purchase Channel of our corporate customers.
Payables Financing.
Purchase Order Financing.
For the Sales Channel of our corporate customers.
Factoring (With or Without Credit Protection).
Export Factoring (With or Without Credit Protection).
Portfolio Invoice Discounting (With partial credit protection).
Distributor Finance.
Payables Financing: - HSBC India’s Payable Financing product enables companies to
finance their payables to vendors. This helps companies to provide immediate liquidity to vendors
against their supplies at competitive rates and will enable the company to negotiate better pricing
terms with vendors.
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It also enables the vendors to improve their cash flow by providing continuous
liquidity against their receivables. Our payables financing products can be structured either
against Bills of Exchange or Accepted Invoices.
Purchase Order Financing is a facility to suppliers of our Corporate Banking Clients to finance
their pre shipment working capital requirements Pre shipment working capital lines are sanctioned
to the supplier’s against Purchase Orders issued to the suppler
Factoring: - This is a service that covers the financing and collection of account receivables in
domestic trade. Receivables are factored, by HSBC with added service of credit protection,
collection and sales ledges administration. Thus the management of the company may
concentrate on production and sales and need not concern itself with non-core activities like
collection and sales ledger administration.
Export Factoring enables companies to finance their open account export sales at competitive
rates either in Rupees or Foreign Currency. Through a network of overseas based correspondent
factors, HSBC provides credit protection against buyer default and collection services.
Portfolio Invoice Discounting Essentially covers purchase of receivables with partial credit
protection based on a First Loss Deficiency Guarantee. The portfolio should be well spread with
acceptable levels of concentration and the debtors must have had a satisfactory track record with
the company. A field audit will be conducted to determine portfolio quality based on which a
First Loss Deficiency Guarantee percentage will be agreed Collection remains the
responsibility of the Corporate with repayments either on a pre-agreed schedule or based on
actual collections.
Distributor Finance is currently offered to the distribution channel of Large Corporate Banking
Clients and can be structured to suit the specific requirements of each corporate and its
distribution channel. Through the Distribute Finance Program, HSBC finances company’s
dealers, which will assist the company in providing steady, assured credit to its distribution chain.
Payments and cash management
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Integrated domestic and regional cash management solutions are provided to corporate and
institutional customers in India. The suite of offerings under the cash management umbrella
includes comprehensive Receivables Management solutions, with an endeavour to completely
integrate with the customer’s back-end operating systems and processes. HSBC is the leading
foreign bank in India in providing capital market solutions, which include Bankers to Issue,
Escrow account Services and Dividend payments solutions. Six Sigma measurement
practices are followed for our operational capabilities. HSBC net, the HSBC Group’s online real
time web-enabled corporate banking platform, allows customers to execute financial
transactions, obtain international financial market information and review details of their domestic
and international accounts from anywhere in the world, 24 hours a day.
Trade (international and domestic) service
HSBC offers a wide range of international and domestic Trade products. In India, we offer one of
the largest trade processing capabilities among peer banks, spread across 5 cities. Each of our
Trade processing centers is ISO 9001-2000 certified. We work closely with Group Offices
overseas and leverage our extensive global network to offer structured, tailor made
solutions to a wide range of customers. Our clients in India include large India and multinational
companies, Mid Market companies as well as customers in the Small and Medium Enterprises
segment.
Corporate & Institutional Banking
Corporate Banking (CB) is an integral part of the Global Banking structure which focuses on
offering a full range of service to multinationals, large domestic corporate and institutional clients
a wide range of banking and financial services provided to domestic and international
operations of large local corporate and local operations of multinationals corporations.
Services include access to commercial banking products, including working capital facilities
such as domestic and international trade operations and funding, channel/distributor financing, and
overdrafts, as well as domestic and international collections and payments, INR and Foreign
currency term loans (external commercial borrowing in foreign currency), letters of guarantee
etc.)
15
Institutional Banking drives the Group’s relationship with banks, financial institutions, securities
houses, insurance companies, and asset management companies and other non-banking
companies, non-government and development organizations operating in India.
Investment Banking and Markets brings together the advisory and financing, equity Securities,
equity linked transactions, asset management, treasury and capital markets, and private
equity activities of the Groups to complete the Global Banking structure and provide a complete
range of financial products to our clients.
Clients are serviced by sector based client service teams that combine relationship managers,
product specialists and industry specialists to develop customized financial solutions. These form
the relationship team along with the Investment Banking structure and provide a complete range
of financial products to our clients.
Our Global Relationship Management teams are tasked with understanding in depth the sectors in
which our clients operate with the aim of adding value through detailed industry knowledge and
structured financial solutions.
Focus on overseas acquisition financing, corporate finance and advisory roles, overseas cash
management opportunities, cross border funding, project & export finance through concerted
marketing with all product providers. Sectoral account management- Improved industry
knowledge andsector4 expertise. The CB portfolio is largely spread within the following sectors
divided as under.
CORPORATES INSTITUTES
Consumer Brands Banks
Industrials &Technology Financial Institutions
Energy and Utilities Securities
Telecommunications MutualFunds/AssetManagement
Companies
Automotive Insurance
Healthcare Financial Sponsors
Transport and Logistics Business Process Outsourcing (BPO’s)
Media Broker and Dealers
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Markets (Domestic & Export): -
Group Service Centres
The HSBC Global Technology Centre in Pune, India develops software for the entire HSBC
group.
As a cost saving measure HSBC is off shoring processing work to lower cost economies in order
to reduce the cost of providing services in developed countries. These locations take on work
such as data and customer service, but also internal software
engineering at Pune, Hyderabad(India), Vishakhapatnam (India), Kolkata (India), Guangzhou (C
hina), and Curitiba (Brazil).
Chief Operating Officer Alan Jebson said in March 2005 that he would be very surprised if fewer
than 25,000 people were working in the centres over the next three years: “I don’t have a precise
target but I would be surprised if we had less than 15 (global service centres) in three years’
time.” He went on to say that each centre cost the bank from $20m to $30m to set up, but that for
every job moved the bank saves about $20,000 (£10,400).
Trade unions, particularly in the US and UK, blame these centres for job losses in developed
countries, and also for the effective imposition of wage caps on their members.
HSBC Building, Shanghai
Currently, HSBC operates centres out of eight countries, including Brazil (Curitiba),
The CzechRepublic (Ostrava), India (Kolkata, Hyderabad, Bangalore, Visakhapatnam, Mumbai,
Gurgaon andPune), China (Shanghai, Guangzhou and Shenzhen), Malaysia (Kuala
Lumpur), Poland (Krakow), Sri Lanka (Rajagiriya) and Philippines (Manila). The Malta trial for
a UK high value call centre has resulted in a growing operation that country. An option under
consideration is reported to be a processing centre in Vietnam to access the French skills of the
population and therefore cut costs in the bank’s French operations.
17
On June 27, 2006, HSBC reported that a "small number" of customers had suffered from fraud
totalling £233,000 after an employee at the Bangalore call centre supplied confidential customer
information to fraudsters.
HSBC Private Bank
HSBC Private Bank is the group's private banking operation, providing private banking and
trustee services to wealthy individuals and their families worldwide. The Private Bank has in
excess of 60 offices worldwide, with the major centres being Miami, New York, London, Geneva
and Hong Kong.
HSBC Premier
HSBC Premier is the group's premium financial services product. The exact benefits and
qualification criteria vary depending on country, but typically require deposits and investments of
at least $100,000, £50,000, or €100,000. Alternatively those who have an individual annual
income of at least £100,000 paid into their HSBC Premier Bank Account and are a customer of
the bank's Independent Financial Advisory Service. Customers have a dedicated Premier
Relationship Manager, global 24 hour access to call centres,free banking services and preferential
rates. A HSBC Premier customer receives the HSBC Premier services in all countries that offer
HSBC Premier, without having to meet that country's qualifying criteria.
HSBC Bank International
HSBC Bank International is the offshore banking arm of the HSBC Group, focusing on
providing offshore solutions and cross border services to expatriates andmigrants. It provides a
full range of multi-currency personal banking services to a range of customer segments,
including a full internet banking and telephone banking service. Sometimes referred to as "HSBC
Offshore", the business also offers independent financial planning, and has representative offices
all over the world, often working alongside local HSBC operations in those regions.
HSBC Bank International originated from the business started by Midland Bank and is based in
the Channel Islands with further operations on the Isle of Man. Its operations in the Channel
Islands are centered around its registered headquarters on the seafront in St Helier, Jersey.
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Named 'HSBC House', the building comprises departments such as Premier, Global Funds &
Investments, e-Business and a 24 hour 'Direct Banking Centre'.
HSBCnet
HSBCnet is a global service that caters to local business needs by offering specialised
functionality for different regions worldwide.
The system provides access to transaction banking functionality - ranging from payments and
cash management to trade services features - as well as to research and analytical content from
HSBC. It also includes foreign exchange and money markets trading functionality.
The system is used widely by HSBC's high-end corporate and institutional clients served
variously by the bank's global banking and markets, commercial banking and global transaction
banking divisions.
HSBCnet is also the brand under which HSBC markets its global e-commerce proposition to its
corporate and institutional clients.
HFC Bank (UK Operation) is a wholly owned subsidiary, with 135 High Street branches in the
UK selling loans to the "sub-prime" market. During 2007 and 2008, has been trying to fend off a
union recognition campaign by the Trade Union Unite.
HSBC Direct
HSBC Direct is a telephone/online direct banking operation which attracts customers through
mortgages, accounts and savings. It was first launched in the USA in November 2005 and is now
available in Britain, Canada,Taiwan, South Korea and France. Poland is launching business
direct in September 2009.
Other relevant information
Industry Banking
Financial services
Investment services
19
Founded Hong Kong (1865)
Founder(s) Thomas Sutherland
Headquarters London, United Kingdom [1]
Number of
locations
9,500 offices in 88 countries &
territories
Area served Worldwide
Key people Stephen Green
(Group Chairman)
Michael Geoghegan
(Group CEO)
Products Finance and insurance
Consumer Banking
Corporate Banking
Investment Banking
Investment Management
Global Wealth Management
Private Equity
Mortgages
Credit Cards
Revenue ▼ $103.74 billion (2009)
Operating income ▼ $7.079 billion (2009)
Profit ▼ $5.834 billion (2009)
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Total assets ▼ $2.364 trillion (2009)
Total equity ▲ $128.299 billion (2009)
Employees 302,000 (2009)
Subsidiaries HSBC Bank plc
HSBC GLT India
The Hongkong and Shanghai
Banking Corporation
HSBC Bank USA
HSBC Bank Middle East
HSBC Mexico
HSBC Bank Brazil
HSBC Finance
Website HSBC.com
21
Introduction to particular firm /division
PROFILE OF THE IL&FS INVESTSMART LTD
Infrastructure Leasing & Financial Services Limited (IL&FS) is one of India's leading
infrastructure development and finance companies IL&FS has a distinct mandate catalyzing the
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development of infrastructure in the country. The organization has focused on the
commercialization and development of infrastructure projects and creation of value added
financial services. From concept to execution, IL&FS houses the expertise to provide the
complete array of services necessary for successful project completion: visioning,
documentation, finance, development, management, technology and execution. This company
was started in 1980 with a major objective of financing major infrastructure and leasing services.
Over the years, IL&FS has broad-based its shareholding, which today includes Life Insurance
Corporation of India, ORIX Corporation – Japan, Housing Development Corporation of India,
Abu Dhabi Investment Authority, State Bank of India, and Central Bank of India.
IL&FS Investsmart Securities Ltd (IISL) is one of India’s leading financial services
organizations. IISL, through its subsidiaries in India and Singapore, provides a wide range of
investment products to its retail and institutional banking, insurance broking & distribution,
mutual funds distribution and related financing services. IISL’s 2,000 employees provide a
complete range of investment solutions to over 138,000 customers in India through its 88
branches and 19 franchised outlets from 133 cities and has been recognized as “National Best
Performing Financial Advisor – Retail” for two years in a row (06-07 & 07-08) BY CNBC TV
18.
23
Fig1(a). Subsidiaries of IL&FS Ltd
IL&FS Investsmart Securities Limited
IL&FS Investsmart Securities Limited (IISL) is one of India’s leading financial services
organizations providing individuals and corporate with customized financial management
solutions.
At IISL, they believe in "Realizing customer goals together". One will find in them - a trusted
investment partner to help customer work towards achieving investor’s financial goals. IL&FS
institutional expertise, combined with a thorough understanding of the financial markets results
in appropriate investment solutions for investors. The strong team of Relationship Managers,
Customer Service Executives, Advisory Managers and Research Analysts, offers efficient
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IL&FS LtdInfrastructure Services
IL&FS Infrastructrure Development Corp Ltd
IL&FS Transportation Networks Ltd
IL&FS Ecosmart Ltd
IL&FS Education &Technology Services Ltd
IL&FS Tripura Area Development Corp Ltd
Noida Toll Bridge Company Ltd
Financial Services
IL&FS Investment Managers Ltd
IL&FS Investsmart Ltd
IL&FS Trust Company Ltd
ORIX Auto Infrastructure Services Ltd
execution backed by in-depth research, knowledge and expertise to customers across the country.
With a pan-India presence of over 300 offices, IIL is geared to meet all the investment needs
through its branches.
IL&FS Investsmarts Limited is an initiative in the field of Financial Services started by
Infrastructure Leasing & Financial Services (IL&FS), an institution known for its innovative and
pioneering initiatives in the areas of Infrastructure, Corporate Finance and Investment Banking.
IISL was set up in October 1997 and began retail operations in September1998.
IL&FS Investsmart Securities Limited (IISL) was set up with the objective of becoming one of
the leading full service brokerage houses in the country with a strong expertise in web-based
technology as well as strengths in physical distribution. Today with a presence in more than 90
cities across India through more than 300 outlets, IISL has become one of the most prominent
players in the Financial Services Industry with service offerings across different categories. In the
year 2008 investsmarts securities received the Best Performing National Financial Advisor –
Retail Segment at the CNBC TV 18 National Financial Advisor Award.
The Retail Business Division at IISL is involved in dealing with a range of financial products
offered to customers across India through multiple locations. The retail business is further
categorized into various business divisions catering to varied needs of our customers. These
include divisions catering to customers for Investment options such as Equity Trading,
Derivatives Trading, IPO Investments, Fixed Income products, Mutual Fund Investments as well
as Insurance and Home Loans Advisory services.
IL&FS Investsmart Securities leverages on its pedigree of IL&FS, which has core competency of
institutional and retail financial services and products. IL&FS is a financial institution known for
its innovative and pioneering initiatives in the areas of infrastructure, corporate finance and
Investment Banking. Global majors E*TRADE FINANCIAL through its wholly owned
subsidiary E*TRADE Mauritius Limited and Softbank Asia Infrastructure fund L.P. (SAIF) have
equity participation in IL&FS Investsmart. SAIF is a leading Asian private equity firm
headquartered in Hong Kong. US based E*TRADE FINANCIAL corporation is a leading
25
financial services organization providing financial services including brokerage, banking and
lending for retail, corporate and institutional customers. It operates branded web sites in 12
countries.
In particular, IL&FS have always felt the need for a successful brokerage Group to have an
international capability. IL&FS believe that the strength of the HSBC Group provides a unique
opportunity for Investsmart to execute its strategic vision. It is IL&FS intention to retain a close
association with Investsmart through co-operation on a number of areas that will be mutually
beneficial and on an arm's length basis”
Mr. Ravi Parthasarathy added, “I believe that HSBC Group will provide Investsmart employees
significant opportunities to enhance the value proposition for their customers. Investsmart
employees will also benefit from the training and development infrastructure that arises from
being a part of one of the world’s leading banking organizations.”
Corporate Action
An approach to business that reflects responsibility, transparency and ethical behavior. Respect
for employees, clients & stakeholder groups.
ILL’s strong team of Relationship Managers, Customer Service Executives, Advisory Managers
and Research Analysts, offers efficient execution backed by in-depth research, knowledge and
expertise to customers across the country.
With a pan-India presence of over 300 offices, IIL is geared to meet all the customers’
investment needs through an office nearby. All the interested investors need to do is drop in at
the nearest branch or call and ILL will be happy to do the rest!
ILL says about its Customer
At IIL, we believe in "Realizing your goals together". Customer will find in IL&FS a trusted
investment partner to help work towards achieving financial goals of clients. IL&FS institutional
26
expertise, combined with a thorough understanding of the financial markets results in appropriate
investment solutions for clients.
Advantages of IL&FS
Today, IL&FS Investsmart Limited is one of India’s leading financial services organization
delivering value and innovation to over 100,000 customers through more than 300 offices across
the India.
7 Reasons for investing with IL&FS Investsmart Limited is smarter.
Customization: They formulate investment plans based on investors’ individual
requirements.
Expertise: They bring within customer reach, IL&FS institutional expertise and their
valuable understanding of the financial markets.
One-stop-shop: They cater to all investors’ investment needs under one roof.
Trust: They enjoy the pedigree of IL&FS and share its expertise in financial
services.
Personalized Service: They help customer through the entire investment process,
step by step, with innovative and efficient services.
Unbiased & Objective Advise: They partner you in your investment process, with
our team of expert investment advisors.
Extensive Reach: Through a host of mediums:
- offline through more than 300 offices across India.
- Online through our website.
Retail Business: Retail offerings of IIL seek to cover all financial planning
requirements of individuals, which include providing personalised investment
management services including planning, advisory and execution and monitoring of
the full range of investment services. Broadly the retail services are divided into two
broad categories.
HSBC in India27
The HSBC Group in India is represented by several entities including The Hong Kong and
Shanghai Banking Corporation Limited which offers a full range of banking and financial
services to its over 2 million customers in India through its 47 branches and 170 ATMs across 26
cities. HSBC is one of India’s leading financial services groups, with over 33,000 employees in
its banking, investment banking and capital markets, asset management, insurance broking, two
global IT development centers and six global resourcing operations in the country. The Bank is
the founding and a principal member of the HSBC Group which, with over 10,000 offices in 83
countries and territories and assets of US$2,354 billion at 31 December 2007, is one of the
world’s largest banking and financial services organizations.
Sale of Stake in Investsmart to HSBC
IL&FS agrees to sell its stake in Investsmart to HSBC. Infrastructure Leasing and Financial
Services Limited (IL&FS), is to sell its 29.36 percent stake in IL&FS Investsmart Limited
(Investsmart), a leading retail brokerage house in India, to HSBC. Under the terms of the
agreements, HSBC, through Group subsidiaries, proposes to acquire IL&FS’s 29.36 per cent
stake of Investsmart for a consideration of INR 410 crores (approximately US$ 96.9 million). In
addition, IL&FS will be paid INR 82 crores (approximately US$ 19.4 million) as part of a three–
year non-compete agreement. HSBC also proposes to acquire an additional 43.85 per cent stake
in Investsmart from E*TRADE Mauritius Limited, an indirectly wholly-owned subsidiary of
E*TRADE Financial Corporation.
Both IL&FS and E*TRADE Mauritius Limited will receive a price of INR200 per share for their
respective stakes. HSBC will also make an open offer to acquire up to 20 per cent of the
remaining shares in Investsmart. Details of the open offer to Investsmart shareholders will be
published in the Indian press and distributed to shareholders in accordance with local regulations.
Established in 1997 by IL&FS, Investsmart is a financial services firm with a strong presence in
retail broking. It has a national distribution network comprising 88 branches, 190 franchise
outlets and more than 660 terminals in 133 cities throughout India. Its 2,000 staff serves over
138,000 clients. While strong in retail broking, it also has businesses in Institutional broking,
investment banking, wealth management, insurance distribution and margin financing. Ravi
28
Parthasarathy, Chairman of IL&FS, said “IL&FS’s goal is to position IIL as a leader in the
brokerage sector.
In particular, IL&FS have always felt the need for a successful brokerage Group to have an
international capability. And believe that the strength of the HSBC Group provides a unique
opportunity for Investsmart to execute its strategic vision. It is IL&FS intention to retain a close
association with Investsmart through co-operation on a number of areas that will be mutually
beneficial and on an arm's length basis” Mr. Parthasarathy added, “I believe that HSBC Group
will provide Investsmart employees significant opportunities to enhance the value proposition for
their customers. Investsmart employees will also benefit from the training and development
infrastructure that arises from being a part of one of the world’s leading banking organizations.”
HSBC will be making the acquisition through Group subsidiaries, including HSBC Securities
and Capital Markets (India) Private Limited, the Group’s broking arm in India. The agreement
and open offer are subject to regulatory and other approvals. With a market capitalization of
approximately US$300 million, Investsmart is listed on the National Stock Exchange and the
Bombay Stock Exchange and its Global Depository Shares are listed on the Luxembourg Stock
Exchange ends/more.
PRODUCT PROFILE
All the products of ILFS can be broadly divided into the following two categories:
1. Online Trading Products
2. Advisory Services
3. Other services.
1. Online Trading Product of IL&FS Investsmart
Basically IL&FS Investsmart offers three types of products to its retail customers. They are:
a. SmarStart
b. SmartInvest
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c. SmartTrade
a. SmartSTART:
SmartStart is a powerful browser based trading system for those who are relatively new to online
investing. A unique integrated account, which integrates customer banking, broking, and demat
accounts of the clients. A comprehensive trading service, which allows customer to invest in
equities and derivatives.
SmartStart trading platform allows customer the flexibility of trading on any internet capable
system, with access to both the NSE and BSE
System Requirement
Browser Type: Microsoft Internet Explorer 6.0 or higher (Java enabled)
Internet Connection: Broadband/Dial-Up connection (Modem at a minimum of
28.8/33.6 Kbps)
System: Pentium 3 or 4 GHz or best available at market RAM (Physical) 128 MB or
better
Operating System: Windows 98/2000 or Windows XP.
Features of SmartStart
Freedom of information.
Control of investor’s money.
Access to market.
Ensure the best price for investors.30
Offers greater transparency.
Live financial news and analysis.
Access to NSE and BSE
b. SmartINVEST
SmartInvest is a browser-based system designed for customers who transact occasionally. It is
ideal for investors who believe in the Buy and Hold Approach towards investment in equities.
SmartInvest's capability as a browser-based trading platform gives customer the benefit of real-
time streaming data with the flexibility of trading on any Internet capable system. With access to
both the NSE and BSE, customers are in the driver's seat when routing their order to the best
price on either of the exchanges. SmartInvest sophisticated yet easy to use point and click order
entry interface allows customer to react more quickly to the markets and make better decisions.
System Requirement
Browser Type: Microsoft Internet Explorer 6.0 or higher (Java enabled)
Internet Connection: Broadband/Dial-Up connection (Modem at a minimum of
28.8/33.6 Kbps)
System: Pentium 3 or 4 Ghz or best available at market RAM (Physical) 128 MB
or better
Operating System: Windows 98/2000 or Windows XP
Features of SmartInvest
Instant Loading: The browser- based applet system allows customer to instant access to
client’s account with no wait time, unlike other system that takes a few minutes to load.
Works behind a proxy: This platform can be accessed on any internet-enabled network.
They can be accessed even from costumer work place.
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Live streaming quotes: Keeps an eye on the stocks of customer’s choice with streaming
real time quotes and customizable market data. Color-coded price changes help them to
spot trends and in turn help the customer to react faster.
Multiple watch lists: The new watch list option allows the customer to create up to 10
groups of watch list with each group accommodating 15 scripts. Each watch list can be
personalized by the customers according to their choice of scripts.
NSE and BSE Access: Flexibility of trading on both NSE and BSE via a single screen.
Single order form for Cash and F & O: Single order form offers the customers the
convenience of transacting in various segments of the market without having to switch
between multiple windows.
Point and click order entry: Makes order entry quick and simple with a click on the
security, the same is inserted on the order form in the trade screen.
Hot key functions: Using a single keystroke (hotkey) function the customer can achieve
important task very similar to a broker’s terminal. Accessing important reports is also one
keystroke away.
Market depth window: It gives an immediate “at a glance” information about the stock
they are following. The view provides the best 5 bids and offers quotes and the
outstanding order quantities.
Back office access: View segment wise ledger bills and contract notes, trades, positions,
account balance, realized/unrealized profit and loss, and buying power all in real time.
c. SmartTRADE:
SmartTrade is an EXE based desktop software designed for active traders who transact
frequently to capture favourable short-term price movements. The platform offers active traders
the tools they need to make critical decisions with confidence.
SmartTrade is designed and built from the ground up to address the needs of active traders.
SmartTrade makes the most of state-of the-art technology to deliver power, speed and reliability.
32
Through an easy-to-use interface, users are provided with the same tools and advantages that the
professionals enjoy.
System Requirement
Browser Type: Microsoft Internet Explorer 6.0 or higher (Java enabled)
Internet Connection: Broadband/Dial-Up connection (Modem at a minimum of
28.8/33.6 Kbps)
System: Pentium 3 or 4 GHz or best available at market RAM (Physical) 128
MB or better
Operating System: Windows 98/2000 or Windows XP.
This account is an EXE based desktop software designed for active traders who transact
frequently to capture favourable short-term price movements. The platform offers active traders
the tools they need to make critical decisions with confidence.
Smart Trade is designed and built from the ground up to address the needs of active traders.
Smart Trade makes the most of state of the art technology to deliver power, speed and reliability.
Through an easy to use interface, users are provided with the same tools and advantages that the
professionals enjoy.
Features of SmartTrade
Fully customizable display: The save desktop option allows the clients to save their
created trade screen layout, so the next time they access the application the created layout
is not lost.
Dynamic charts with Indicators: Provides the clients a wealth of charting capabilities
and timing indicators, which allow them to go right into the action with real time daily
charts, and intra-day charts. Watch price movements by minutes, days or weeks.
EOD Charts: Smart Trade puts up to 5 years of in depth history at their command with
the power to instantly back-test any trading strategy they design, before risking one rupee
of their trading capital.
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Real- Time market data: Get real time market data from both NSE and BSE, similar to
what a professional broker gets.
Advanced alert capabilities: Alert window allows the customer to be free from watching
every tick. Users can be notified once a security has reached the set parameters. Multiple
securities can be monitored using the set parameters. These alerts can be triggered both
visually and audibly.
Live order status: Tracking all their orders are made easy through the order status
screen. Further drill down into all details pertaining to an order is available in the order
detail sub report.
Track your orders real time: Track customer stock orders and trades in real time.
Real time position updates: All their positions are updated automatically and instantly.
The need of refresh button is avoided.
Dynamic buying power: It reflects their credits and debits instantly on every trade
execution. No need to refresh each statement to know their latest buying limits.
Derivative chain: This feature provides with a list of all derivative contracts available for
the selected security. To view derivative prices of a security just right click on the symbol
and click on derivative chain.
Lock terminal option: If the system is unattended, this function locks the trading
platform for the customers and can be accessed again only on providing the proper login
details.
Message window docking: This feature enables the customers to receive trading
messages, intraday trading calls and messages from both the exchanges flashed real time
onto their screens.
2. Advisory Services
Basically IL&FS Investsmart offers following types of services to its retail customers. They are:
34
a. Mutual fund advisory services.
b. Portfolio management services.
c. IPO Advisory and Distribution Services.
d. Insurance Advisory Services.
e. Investment Advisory services.
a. Mutual Fund Advisory Services
As a part of Mutual Fund Advisory Services, their team of experts across India helps investors in
selecting the right scheme from over 500 offerings, matching customer needs, goals and risks. In
addition to this, we also help you constantly monitor their MF portfolio, making changes
according to the changing needs as per the market scenario, in order to make customers money
work for investors.
At IL&FS Investsmart (IIL), their expert teams of relationship managers interact with investors
on a regular basis to discern customer changing needs, in tune with the changing environment.
Most of investors require some assistance in making selections appropriate to their individual
needs. Investors need sound advice from people who have expertise to decipher the financial
jargon of investment options available today. Their Investment Advisory Team helps customer
customize and execute plans, based on their individual needs towards wealth maximization.
b. Portfolio Management Services (PMS)
Financial markets today offer enormous growth potential. But managing investors own
investments can be an extremely challenging task. Anticipating market trends, assessing the
impact of socio-economic changes on customer investments, keeping abreast of latest corporate
developments and financial analysis all adds up. Managing one’s investments has become nearly
a full-time affair that requires considerable time and expertise.
At IL&FS Investsmart, they offer customer just the solution that allows clients to relax as IL&FS
put their money to work through the IIL-PMS, a Discretionary Portfolio Management Service.
c. IPO Advisory and Distribution Services
35
IL&FS Investsmart (IIL) is one of India's leading companies engaged in the activity IPO
Advisory and Distribution. IL&FS primary markets division does a comprehensive research
before recommending issues to clients. IL&FS pan India reach helps us in mobilising large
number of applications across India during public offerings, this has ensured that constantly
figure amongst the top ranking performers in the primary market distribution space.
As a part of their online offering, customers can invest in IPO's not only through IL&FS
branches but also through our website, which also provides customer with regular updates on the
IPO scenario, Open IPO's as well as all the forthcoming IPO's at any given point of time.
The primary markets distribution division works in conjunction with the retail and wholesale
distribution networks, as well as IL&FS private client group. In case there are not IL&FS
customers, but still want to invest in any particular IPO, IL&FS suggest client to visit any of
branch locations near clients or else call us for an application form and IL&FS would courier it to
customer.
d. Insurance Advisory Services
IL&FS Investsmart (IIL) is customer one stop shop for all Insurance & Retirement needs. They
have also been recognized as India’s Best Retail Financial Advisors at the CNBC TV18 Financial
Advisory Awards 2006-07, 2007-08.
Their key service features include the following:
Risk management solutions for all
Comprehensive research for all policies available on a regular basis
Recommendations on a comprehensive insurance cover based on clients needs
Maintain proper records of client policies
e. Investment Advisory Services
The investment advisory team in the company helps customize plans, base on customer
individual needs.
3. Other services36
Basically IL&FS Investsmart offers following types of other services to its retail customers. They
are:
a. Online services.
b. Research and Financial Analysis.
c. Value added services.
a. Online Services
The website offers unique features such as real time news and analysis, a personal portfolio
manager, research tools, corporate profiles, mutual fund and product options, IPO centres, stock
alerts, investment advisory services, query solving and much more.
b. Research and Financial Analysis
The research team in the company thoroughly studies each asset class-equity, mutual funds,
commodities and fixed income products. The qualified financial analysts in the company study
the market trends and make objective recommendations, so that customers can make well-
informed decisions.
c. Value Added Service
Smart update – Extensively researched monthly reports detailing the market performance
of various investment options.
Mutual fund Weekly updates – Analysis of the Mutual Fund industry, offering an
overview of Mutual Fund Schemes.
Flavour of Equity – Monthly reports on the change in exposure in the top 10 stocks,
churning of portfolios and the entry and exit of stocks by the respective fund managers of
select Mutual Fund companies.
Bond Fund Snapshot – Monthly reports on analysis of bond funds of select mutual fund
companies.
37
Rolling returns – Monthly reports on the fundamental and technical call for equities and
derivatives for short term.
Market wrap – Daily post market analysis.
Smart trader – Daily reports on the fundamental and technical call for equities and
derivatives for short term.
Equity Research reports – Sector and company wise reports on the fundamentals, along
with a recommendation of the stock.
Strategy note – Quarterly note on the broad equity market views, macro fundamentals and
top stock picks.
Result preview – Pre result quarterly reports on select companies.
Result update – Post result quarterly reports on select companies.
Event notes – Implications and analysis of major corporate events like mergers and
takeovers.
Visit notes – Notes on the company’s outlook and discussion during a corporate visit.
Deri Watch – Weekly, sock specific technical and derivatives statistics reports.
Deri Strat – Daily derivatives market strategy.
IPO Updates – Analysis on the current IPO with support for and against it.
Policy Updates – Updates and analysis of important announcements and policies like the
budget and monetary.
Morning coffee – Daily update on the Indian and International financial markets.
Morning Track – Monthly research reports on the debt and money markets.
38
Commodity reports – Daily and weekly commodity reports.
Depository & Custodial services - Company also offers dematerialization services as the
company is Depository Participant of NSDL.
Top Management
A committed and formidable management team anchors the company towards its goal and
provides direction in diverse areas of business strategy, operating management, regulatory
reporting, human resources development, product development etc. Equipped with excellent
domain knowledge and extensive experience, they drive IIL’s vision.
Mr. Manasije Mishra MD & CEO
Mr. Avdhoot Deshpande Head - Equity and Capital Markets
Mr. Vipul Shah Head - NBFC
Mr. Dharmen shah Vice President - Institutional Equity
Mr. B.S. Shashidhar Head - IAIFL and General Insurance
Mr. Jaideep Anand Senior Vice President - Institutional Sales & Dealing
Mr. C. Diwakar Chief Information Officer (CIO)
Mr. Bhuvnesh Khanna Head - Alternate Channels
Mr. K. Venkatesh Head – Distribution
Fig 2(a)Organization Chart of HSBC InvestDirect Ludhiana Branch
39
40
Branch ManagerMr. Saurabh Talwar
Offline
Opeartions (3 Persons)
Online
SWOT Analysis
INTRODUCTION
41
SWOT Analysis is a strategic planning tool used to evaluate the strengths, weaknesses,
opportunities, and threats for a business entity. It involves specifying the objective of the
business venture or project and identifying the internal and external factors that are favourable
and unfavorable to achieving that objective. The technique is credited to Albert Humphrey, who
led a research project at Stanford University in the 1960s and 1970s using data from fortune
500companies
Strengths: Attributes of the organization which are helpful to achieving the objective.
Weaknesses: Attributes of the organization which are harmful to achieving the
objective.
Opportunities: External conditions which are helpful to achieving the objective.
Threats: External conditions which could damage the business’s performance.
SWOT ANALYSIS OF IL&FS INVESTSMART LTD.
Strengths
Customization: It understands the dreams, needs, aspirations, concerns and resources
are unique and this is reflected in every move they do for the sake of individual
customer. This is the greatest value it provide online trading products like Smart
Invest and Smart Trade.
Expertise: IIL brings within the customers reach their institutional expertise and the
ability to effectively combine an invaluable understanding of the financial markets,
with an intention of building a long-term partnership.
One-stop-shop for all the investment needs: IIL gives all the types of services and
products an individual investor can dream and think off. All the financial products and
services are under one-roof.
Unbiased and objective advice: The teams of expert investment advisors customize
plans to suit the needs of investors.
42
Extensive reach: IIL make sure that they are always accessible to customers through
a host of mediums. A customer can contact them either through website or through
their branches and channel partners of more than 300 offices across India.
Brand image: IIL as such is a well known brand in industry.
Competitive pricing: It charges less brokerage compared to its competitors.
Weaknesses
Expensive products: Some of the products like SmartTrade are quite expensive. An
annual charge for SmartTrade is Rs. 3000.
Tedious procedures: Tedious procedures and delays in processing the data and
documents of new customers.
Fund transfer: It has tie-ups with only 5 banks for online fund transfer, where as
other competitors have more tie-ups.
Attrition: High attrition rates in trainees category.
Unattractive offers: Some offers of the company like Advance Subscription Plan
with a deposit of Rs.50,000 to avail low brokerage charges. The low brokerage
charges will be effective for the clients for a minimum turnover of Rs. 50 Crore p.a.
Opportunities
Indian economy seems to be out of recession. This is the right time for inventers to re-
enter the market. The company should adopt some strategies to increase the business
through existing clients.
The increasing number of management graduates helps to get sales force at trainee levels
at less salaries or commission basis. It reduces the salaries and commissions expenses of
the company. The company can tie up with reputed B Schools for trainees.
Huge untapped market in rural areas, Tier2 and Tier 3 cities and towns of India can be
concentrated to increase the business.
43
Many a banks are offering fund transfer services. The company can increase the tie-ups
for fund transfers at attract customers of different banks.
Threats
Stiff competition from existing players in the market and there is also a threat of new
entrants. It has lead to cut throat competition in terms of brokerage charges and exposure.
Increasing awareness of mutual funds and ULIPs created by Domestic Institutional
Investors has reduced the direct investment in to stock market to some extent. This
automatically reduces the business of stock brokers.
Changing economic scenario in India and changes in government policies will have great
impact on the revenue of this company
Many a investors burnt their figures during the bearish market conditions. It has turned
many a trading accounts inoperative.
44
FINANCIAL STATEMENT
ANALYSIS
Ratio Analysis: -
45
A Ratio is a simple arithmetical expression of the relationship of one number to another. The
Ratio Analysis is one of the most powerful tools of financial analysis. It is with the help of ratios
that the financial statements can be analyse more clearly and decisions made from such analysis.
Ratio Analysis is the process of establishing & interpreting various ratios for helping in making
certain decisions.
Liquidity Ratio: -
Liquidity refers to the ability of a concern to meet its current obligations as and when these
become due. The short-term obligations are met by realising amounts from current, floating or
circulating assets. The current assets should either be liquid or near liquidity. These should be
convertible into cash for paying obligations of short-term nature.
1) Current Ratio : - The current ratio is the ratio of total current assets to current liabilities.
The current ratio indicates the firm’s ability to pay its current liabilities. By using this ratio
the extent of the soundness of current financial position of an undertaking and the degree
of safety provided to the creditors. Greater the current ratio the larger amount of rupee
available to the firm per rupee of current liabilities.
Current Ratio = Current Assets Current LiabilitiesTable 2(a) Current Ratio
2009 2008
2007
Current Ratio 1.90 2.30 2.20
46
2007 2008 2009
Current Ratio 2.2 2.3 1.9
0.25
0.75
1.25
1.75
2.25
Current Ratio
Fig 3(a) Current RatioInterpretation: - From the above data it can be clearly interpreted that the current ratio for the
march 2009 is less as compared to previous year. For the last year it was good and it was
depicting that the short term financial position of the company was very good and for this year
current ratio is good but not as per the previous standards.
47
Quick Ratio: -
Quick ratio also called as Acid test ratio. The quick ratio is a fairly stringent measure of liquidity. It is
based on those current assets, which are highly liquid – inventories are excluded from the numerator of
this ratio because inventories are deemed to be the least liquid component of current assets. Quick ratio
can be calculated by dividing the quick assets by current liabilities. Quick ratio is a liquidity ratio or 1:1
ratio this ratio indicates liquid financial position of an enterprise.
Quick Ratio = Quick Assets
Current liabilities
Table 3 (a):- Quick Ratio
2009 2008 2007Quick Ratio 1.10 1.10 1.00
2007 2008 2009
Quick Ratio 1 1.1 1.1
0.95
0.97
0.99
1.01
1.03
1.05
1.07
1.09
1.11
Quick Ratio
Fig 4(a):- Quick Ratio
Interpretation: - From the above data we can see that the quick ratio of the bank is good and
satisfying the thumb rule of 1:1 also. For the last two years it is same i.e. 1.10:1 that means bank
is well enough to pay off its creditors.
48
Return on Total Assets: -
It refers to a ratio that measures a company's earnings before interest and taxes (EBIT) against its
total net assets. The ratio is considered an indicator of how effectively a company is using its
assets to generate earnings before contractual obligations must be paid.
To calculate ROTA:
= EBIT
Total Net Assets
Table 4(a):- Return on total asset
2009 2008 2007
Return on Total Assets
9.90 12.00 12.50
2007 2008 2009
Return on Total Assets 12.5 12 9.9
1
3
5
7
9
11
13
Return on Total Assets
Fig 5(a) :- Return on total asset
Interpretation: - It can be observed from the above data that return on total assets is
decreasing from the previous years. However it doesn’t mean that net profit of the bank has been
decreased it is basically due to increase in total assets which is much higher than the net profit.
Gross Profit Ratio: -49
Gross profit ratio is defined as the difference between net sales and cost of good sold. This ratio
shows the margin left after the meeting manufacturing costs. It measures the efficiency of
production as well as pricing. To analyze the factors underlying the variation in gross profit
margin the proportion of various element of cost to sales is studied. The gross profit ratio is
computed by dividing gross profit by sales
Gross profit
Gross Profit Ratio = *100
Sales
Table 5(a):- Gross profit Ratio
2009 2008 2007Gross Profit Ratio 30.2
030.80 31.50
2007 2008 2009
Gross Profit Ratio 31.5 30.8 30.2
29.75
30.25
30.75
31.25
31.75
Gross Profit Ratio
Fig 6(a):- Gross profit Ratio
Interpretation: -
G/p ratio of the company is ranging from 30-31 for the last three years and there is
however a little bit change in the ratio for the last years. There is not any standard
thumb rule to compare this ratio but as per market trend this percentage is good.
50
Net Profit Ratio: -
This ratio indicates the earning left for shareholder as a percentage of net sales. It
measures the overall efficiency of production, administration, selling, financing
pricing, and tax management. Jointly considered, the gross and net profit margin
ratios provide a valuable understanding of the cost and profit structure of the firm
and enable the analyst to identify the sources of business efficiency. Net profit ratio
is computed by dividing net profit by sales.
Net Profit Ratio = Net profit
Sales
Table 6(a):- Net profit Ratio
2009 2008 2007
Net Profit Ratio 6.60 5.50 6.10
2007 2008 2009
Net Profit Ratio 6.1 5.5 6.6
4.9
5.1
5.3
5.5
5.7
5.9
6.1
6.3
6.5
6.7
Net Profit Ratio
Fig 7(a):- Net profit Ratio
Interpretation: - Net profit ratio of the company has increased from the
previous year and this shows the company is performing well and the main reason
for increase in the net profit is increase in sales which is more than the increase in
expenses of the company.
51
Debt Equity Ratio: -
It is calculated to measure the relative claims of outsiders and the owners against the firm’s
assets. This ratio indicates the relationship between the external equities or the outsiders funds
and the internal equities or the shareholders’ funds.
Debt-Equity Ratio = Outsiders Funds
Shareholders’ Funds
Table 7(a) Debt Equity Ratio
2009 2008 2007Debt-Equity Ratio 2.59 1.42 1.44
2007 2008 2009
Debt-Equity Ratio 1.44 1.42 2.59
0.25
0.75
1.25
1.75
2.25
2.75
Debt-Equity Ratio
Graph 8(a) Debt Equity Ratio
Interpretation: - Debt equity ratio of the company has been improved from the last year and
this shows that the company has increased its debts but however more increase in debt will
increase the risk from the equity shareholder’s point of view.
52
Total Debt to Total Assets Ratio: -
The ratio indicates the relationship between the total liabilities to outsiders to total assets of a
firm and can be calculated as follows:-
= Total Liabilities to Outsiders
Total Assets
Table 8(a):- Total debt to total asset
2009 2008 2007Total Debt to Total
Assets ratio0.69 0.55 0.54
2007 2008 20090
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Total Debt to Total Assets Ratio
Total Debt to Total Assets Ratio
Fig 9(a):- Total debt to total asset
Interpretation: - In above data we can see that the total debt to total assets for last three years
is continuously increasing that Shows Company is now increasing the share of debts in assets.
But on the other hand it is also enlarging the risk profile for the creditors.
Trend Analysis: -53
An aspect of technical analysis that tries to predict the future movement of a stock based on past
data. Trend analysis is based on the idea that what has happened in the past gives traders an idea
of what will happen in the future. Trend analysis tries to predict a trend like a bull market run and
ride that trend until data suggests a trend reversal (e.g. bull to bear market). Trend analysis is
helpful because moving with trends, and not against them, will lead to profit for an investor.
Table 9(a):-Trend Analysis of Net Sales: -
2006-07 2007-08 2008-09
Series 1 100 109.02 127.81
10
30
50
70
90
110
130
Trend Analysis of Net Sales
Percentage (
%)
Fig 10(a):-Trend Analysis of Net Sales
Interpretation : -From the above data we can observe that the net sales of the company is
increasing which may tends to increase in the net profit of the company and also will lead to
increase in the net-worth.
Table 10(a):- Trend Analysis of Expenses (Administrative Selling & Distribution): -54
Years Sales Percentage
2006-2007 4777.64 100
2007-2008 5208.38 109.02
2008-2009 6106.43 127.81
2006-2007 2007-2008 2008-2009
Series1 100 110.04 112.4
92.5
97.5
102.5
107.5
112.5
Trend analysis of Expenses
Perc
en
tag
e (
%)
Fig 11(a):- Trend Analysis of Expenses (Administrative Selling & Distribution):
Interpretation: - From the above data we can observe that the expenses from the last years are
increasing but their percentage change is not as much as in the sales which will tend to increase
in the Net profit. But increase in expenses from 2006-07 to 2007-08 is more than the net sales
which may tend to decreases in profit.
Table 11(a):-Trend Analysis of Net Profit
55
Years Expenses Percentage
2006-2007 720.32 100
2007-2008 792.62 110.04
2008-2009 809.66 112.40
Years Net Profit Percentage
2006-2007 291.12 100
2007-2008 286.50 98.41
2008-2009 401.52 137.92
2006-2007 2007-2008 2008-2009
Series1 100 98.41 137.92
10
30
50
70
90
110
130
150
Trend analysis of Net Profit
Perc
en
tag
e (
%)
Fig 12(a):- Trends analysis of Net Profit
Interpretation: - As from the above trend it can be analyzed that Net profit for the company is
continuously increasing. But however increase N/P from 2006-07 to 2007-08 was decreased due
to increase in expenses as compared to previous years.
56
PART B
57
Chapter 1
Introduction to the project
58
Introduction to ULIPS
Unit-linked insurance plans, popularly known as Ulips are life insurance policies which offer a
mix of investment and insurance similar to traditional life insurance policies such as endowment,
money-back and whole-life, but with one major difference. Unlike traditional policies, in Ulips
investment risk lies with the insured (i.e., policy holder) and not with the insurance company. Put
another way, in case of adverse market conditions, you can even lose your capital invested.
The returns in a ULIP depend upon the performance of the fund in the capital market. ULIP
respondents have the option of investing across various schemes, i.e, diversified equity funds,
balanced funds, debt funds etc. It is important to remember that in a ULIP, the investment risk is
generally borne by the investor.
In a ULIP, respondents have the choice of investing in a lump sum (single premium) or making
premium payments on an annual, half-yearly, quarterly or monthly basis. Respondents 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 respondents can shift their investments
across various plans/asset classes (diversified equity funds, balanced funds, debt funds) either at
a nominal or no cost.
Brief History of Insurance
The insurance sector in India dates back to 1818, when Oriental Life Insurance Company like
Bombay life Assurance Company, in 1823 and Tritons Insurance Company, for General Insuran..
ce, in 1850 were incorporated. Insurance ACT was passed in 1928 but it was subsequently
reviewed and comprehensive legislation was enacted in 1938 the nationalization of life insu
rance business took place in 1956 when 245 Indian and Foreign insurance societies were
first merged and then nationalized. It paved the way towards the establishment of life
insurance Corporation (LIC) and since then it has enjoyed a monopoly over the life insurance
business in India. General Insurance business.
59
Subsequently in 1973, non-life insurance business was nationalized and the General Insurance
Business (Nationalization) ACT, 1972 was promulgated. The General Insurance
Corporation (GIC) in its present form was incorporated in 1972 and maintains a very strong hold
over the non-life insurance business in India. Due to concerns of relatively low spread of
insurance in the country.
The efficient and quality functioning of the Public Sector Insurance Companies. The untapped
potential for mobilizing long-term contractual savings funds for infrastructure. The (Congress)
government set up Insurance set u an Insurance Reforms committee in April 1993. The committee
submitted its report in January 1994, recommended a phased program of liberalization, and called
for private sector entry and restructuring of the LIC and GIC.
TRADITIONAL LIFE – AN OVERVIEW
The basic and widely used form of design is known as Traditional Life Platform. It
is based on the concept of sharing. Each of the policy holder contributes his contribution
(premium) into the common large fund is managed by the company on behalf of the policy
holders.
Administration of that common fund in the interest of everybody was entrusted to the
insurance company .It was the responsibility of the company to administer schemes for benefit of
the policyholders. Policyholders played a very passive roll. In the course of time, the same
concept of sharing and a common fund was extended to different areas like saving, investment etc.
Structure of ULIPs
ULIPs offered by different insurers have varying charge structures. However the insurers have
the right to revise or cancel the fees and charges over a period of time
Broadly the different types of fees and charges are given below:
1. Premium Allocation Charge: This is a percentage of the premium appropriated towards
charges from the premium received. The balance known as allocation rate constitutes that part of
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premium which is utilized to purchase (investment) units for the policy. The percentage shall be
explicitly stated and could vary interalia by the policy year in which the premium is paid, the
premium size, premium payment frequency and the premium type (regular, single or top-up
premium). This is a charge levied at the time of receipt of premium. This charge may also
include an initial management charge, which is levied on the units created from the first years’
premium, for a specified period.
Example: If premium = Rs.1000 & Premium Allocation Charge: 10% of the premium; then the
charge is: Rs.100 and Balance amount of premium is Rs.900 and is utilized to purchase units.
2. Fund Management Charge (FMC): This is a charge levied as a percentage of the value of
assets and shall be appropriated by adjusting the Net Asset Value This is a charge levied at the
time of computation of NAV, which is usually done on daily basis.
Example: If Fund Management charge (FMC) is 1% p.a. payable annually; Fund as at 31.3.2004
before FMC is Rs.100/- and Fund after this charge is Rs.99/-.
3. Policy Administration Charge: This charge shall represent the expenses other than those
covered by premium allocation charges and the fund management expenses. This is a charge
which may be expressed as a fixed amount or a percentage of the premium or a percentage of
sum assured. This is a charge levied at the beginning of each policy month from the policy fund
by canceling units for equivalent amount. This charge could be flat throughout the policy term or
vary at a pre-determined rate.
Example: Rs.40/- per month increased by 2% p.a. on every policy anniversary.
4 Surrender Charge: This is a charge levied on the unit fund at the time of surrender of the
contract. This charge is usually expressed either as a percentage of the fund or as a percentage of
the annualized premiums (for regular premium contracts).
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5. Switching Charge: This a charge levied on switching of money from one fund to another
available within the product.
Example: Rs.100 per switch.
6. Mortality charge: This is the cost of life insurance cover. It is exclusive of any expense
loadings levied either by cancellation of units or by debiting the premium but not both. This
charge may be levied at the beginning of each policy month from the fund. The method of
computation shall be explicitly specified in the policy document. The mortality charge table shall
invariably form part of the policy document.
7. Rider premium charge: This is the premium exclusive of expense loadings levied separately
to cover the cost of rider cover levied either by cancellation of units or by debiting the premium
but not both. This charge is levied at the beginning of each policy month from the fund.
8. Partial withdrawal charge: This is a charge levied on the unit fund at the time of part
withdrawal of the fund during the contract period.
9. Miscellaneous charge: This is a charge levied for any alterations within the contract, such as,
increase in sum assured, premium redirection, change in policy term etc. The charge is expressed
as a flat amount levied by cancellation of units. This charge is levied only at the time of
alteration.
Example: Rs.100/- for any alteration such as increase in sum assured, change in premium mode
etc
Table 1.1 ULIPS Vs. Traditional Life Insurance Plans:-
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S. No Features ULIP’S Traditional Plan
1 Premium Invested by Policy Holder. Invested by Insurer’s.
2 Return Depends Upon Market moments Fixed
3 Loans Not Provided Provided
4 Bonus No bonuses, except loyalty
addition in some cases.
Bonuses are payable
5 Loss Likely Unlikely
6 Benefits Variable Pre- Determined
7 Gains Gains likely depending on
market movements
Gains unlikely except through
bonuses
8 Potential for better
returns
100% investment in Debt or
Equity acc. to wish.
At least 85% investment in
debt which result low return
9 Greater transparency Here we know were over money
is invested.
Not known where money is to
be invested.
10 Flexibility in investment Flexibility provided to customer. No Flexibility provided to
customer.
11 Flexibility in insurance
coverage
Option to choose coverage & to
increase risk cover
No option to choose coverage
12 Higher Liquidity Exit option available. No exit option
Types of Funds under ULIPs
63
Most insurers offer a wide range of funds to suit one’s investment objectives, risk profile and
time horizons. Different funds have different risk profiles. The potential for returns also varies
from fund to fund.
The following are some of the common types of funds available along with an indication of their
risk characteristics.
Table 1.2: Types of fund under ULIPs
General
Description Nature of Investments Risk Category
Equity Funds
Primarily invested in
company stocks with the
general aim of capital
appreciation
Medium to High
Income, Fixed
Interest and
Bond Funds
Invested in corporate bonds,
govt. securities and other
fixed income instruments
Medium
Cash Funds
Sometimes known as Money
Market Funds - invested in
cash, bank deposits and
money market instruments
Low
Balanced Funds Combining equity investment
with fixed interest instruments Medium
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
64
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. More importantly ULIPs offer
investors the opportunity to select a product which matches their risk profile.
Unit Linked Insurance Plans came into play in the 1960s and became very popular in
Western Europe and Americas. In India The first unit linked Insurance Plan ,
popularly known as ULIP – Unit Linked Insurance Plan in India was brought out by Unit Trust
Of India in the year 1971 by entering into a group insurance arrangement with LIC o
provide for life cover to the investors , while UTI , as a mutual was taking care of
investing the unit holders money in the capital market and giving them a fair return .
Subsequently in the year 1989 , another Unit Linked Product was launched by the LIC Mutual
Fund called by the name of “DHANARAKSHA” which was more or less on the line of ULIP of
UTI . Thereafter LIC itself came out with a Unit Linked Insurance Product known by name
“BIMA PLUS “ in the year 2001-02 .
Presently a number of private life insurance companies have launched Unit Linked Insurance
Products with a variety of new features
TYPES OF ULIP
There are various unit linked insurance plans available in the market However, the key ones are
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pension, children, group and capital guarantee Plans.
The pension plans come with two variations — with and without life cover and are meant for
people who want to generate returns for their sunset years
The children plans, on the other hand, are aimed at taking care of their educational and other
needs.
Apart from unit-linked plans for individuals, group unit linked plans are also available in the
market. The Group linked plans are basically designed for employers who want to offer certain
benefits for their employees such as gratuity, superannuation and leave encashment.
The other important category of ULIPs is capital guarantee plans. The plan promises the
policyholder that at least the premium paid will be returned at maturity. But the guaranteed
amount is payable only when the policy's maturity value is below the total premium paid by the
individual till maturity However, the guarantee is not provided on the actual premium paid but
only on that portion of the premium that is net of expenses (mortality, sales and
marketing, administration).
Type I vs Type II ULIPs
There are basically two types of ULIP plans. Type-I plans pays the higher of the sum assured and
fund value to the nominees upon the death of life assured whereas in case of Type II plans both
the sum assured and fund value are paid.
It is always preferable to opt for Type 2 policies which are more protection (the core aim of
insurance) oriented -- although a bit expensive then Type-I policies due to high mortality
charges -- because in case of Type-I policies risk exposure/sum at risk (sum assured minus fund
value) keeps on decreasing in the later years as your fund value increases which amounts to
having inadequate insurance coverage
How ULIPs work
ULIPs work on the lines of mutual funds. The premium paid by the client (less any charge) is used
to buy units in various funds (aggressive, balanced or conservative) floated by the insurance
companies. Units are bought according to the plan chosen by the policyholder. On every
additional premium, more units are allotted to his fund. The policyholder can also switch among 66
the funds as and when he desires. While some companies allow any number of free switches to the
policyholder, some restrict the number to just three or four. If the number is exceeded, a certain
charge is levied.
Individuals can also make additional investments (besides premium) from time to time to increase
the savings component in their plan. This facility is termed "top-up". The money parked in a ULIP
plan is returned either on the insured's death or in the event of maturity of the policy. In case of the
insured person's untimely death, the amount that the beneficiary is paid is the higher
of the sum assured (insurance cover) or the value of the units (investments) However, some
schemes pay the sum assured plus the prevailing value of the investments.
ULIP - KEY FEATURES
Premiums paid can be single, regular or variable. The payment period too can be regular
or variable. The risk cover can be increased or decreased.
As in all insurance policies, the risk charge (mortality rate) varies with Age
The maturity benefit is not typically a fixed amount and the maturity period can be
advanced or extended.
Investments can be made in gilt funds, balanced funds, money market funds, growth funds
or bonds.
The policyholder can switch between schemes, for instance, balanced to debt or gilt to
equity, etc
The maturity benefit is the net asset value of the units.
The costs in ULIP are higher because there is a life insurance component in
it as well, in addition to the investment component.
Insurance companies have the discretion to decide on their investment portfolios.
Being transparent the policyholder gets the entire episode on the performance
of his fund.
ULIP products are exempted from tax and they provide life insurance.
Provides capital appreciation.
Investor gets an option to choose among debt, balanced and equity funds.
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USP of ULIPS
Insurance cover plus savings-ULIPs serve the purpose of providing life insurance combined
with savings at market-linked returns. To that extent, ULIPS can be termed as a two-in-one plan in
terms of giving an individual the twin benefits of life insurance plus savings.
Multiple investment options-ULIPS offer a lot more variety than traditional life insurance plans.
So there are multiple options at the individual’s disposal. ULIPS generally come in three broad
variants.
Aggressive ULIPS (which can typically invest 80%-100% in equities, balance in debt)
Balanced ULIPS (can typically invest around 40%-60% in equities)
Conservative ULIPS (can typically invest up to 20% in equities)
Although this is how the ULIP options are generally designed, the exact debt/equity
allocations may vary across insurance companies. Individuals can opt for a variant based on their
risk profile.
Flexibility- The flexibility with which individuals can switch between the ULIP variants to
capitalize on investment opportunities across the equity and debt markets is what distinguishes it
from other instruments. Some insurance companies allow a certain number of ‘free’
switches. Switching also helps individuals on another front. They can shift from an
Aggressive to a Balanced or a Conservative ULIP as they approach retirement. This is a
reflection of the change in their risk appetite as they grow older.
Works like an SIP- Rupee cost-averaging is another important benefit associated with ULIPS.
With an SIP, individuals invest their monies regularly over time intervals of a month/quarter and
don’t have to worry about ‘timing’ the stock markets
Fund Switching Option-There is nil or negligible cost involved. Besides, there is no tax
involved. And most of all, it is hassle free. The day mutual funds also start providing this fund
switching facility, the only real edge Ulips have over mutual funds will be lost.
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HURDLES OF ULIP
No standardization- All the costs are levied in ways that do not lend to standardization.
If one company calculates administration cost by a formula, another levies a flat rate. If one
company allows a range of the sum assured (SA), another allows only a multiple of the premium.
There was also the problem of a varying cost structure with age.
Lack of Flexibility in Life cover-ULIP is known to be more flexible in nature than the traditional
plans and, on most counts, they are. However, some insurance companies do not allow the
individual to fix the life cover that he needs. These rely on a multiplier that is fixed by the insurer.
Overstating the Yield-Insurance companies work on illustrations. They are allowed to show you
how much your annual premium will be worth if it grew at 10 per cent per annum But there are
costs, so each company also gives a post-cost return at the 10 per cent illustration, calling it the
yield. some companies were not including the mortality cost while calculating the yield. This
amounts to overstating the yield.
Internally made Sales Illustration-During the process of collecting information, it was
found that the sales benefit illustration shown was not conforming to the Insurance Regulatory
and Development Authority (Irda) format. in many locations30 per cent return
illustrations are still rampant.
Not all Show the Benchmark Return-To talk about returns without pegging them to a
benchmark is misleading the customer. Though most companies use Sensex, BSE 100 or the
Nifty as the benchmark, or the measuring rod of performance, some companies are not using
any benchmark at all.
Early exit Options-The Ulip product works over the long term. The earlier the exit, the worse off
is the investor since he ends up redeeming a high-front-load product and is then encouraged to
move into another higher cost product at that stage. An early exit also takes away the benefit of
compounding from insured.
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Creeping Costs-Since the investors are now more aware than before and have begun to ask for
costs, some companies have found a way to answer that without disclosing too much.
People are now asking how much of the premium will go to work. There are plans that are able to
say 92 per cent will be invested, that is, will have a front load of just 8 per cent. What they do not
say is the much higher policy administration cost that is tucked away inside (adjusted from the
fund value). While most insurance companies charge an annual fee of about Rs 600 as
administration costs, that stay fixed over time, there are plans that charge this amount, but it grows
by as much as 5 per
The Insurance Players… HDFC Standard Life Insurance Company Limited
Birla Sun Life Insurance Company Limited
TATA AIG Life Insurance Company Limited
Max New York Life Insurance Company Limited
Kotak Mahindra Old Mutual Life Insurance Limited
SBI – Cardiff Life Insurance Company Limited
ING Vysya Life Insurance Company Limited
Bajaj Allianz Life Insurance Company Limited
ICICI Prudential Life Insurance Company Limited
MetLife Life Insurance Company Limited
Aviva Life Insurance Company Limited
Reliance Life Insurance Company Limited
Sahara India Life Insurance Limited
What are Mutual Funds?
A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such
70
Introduction to Mutual Funds
as shares, debentures and other securities. The income earned through these investments and
the capital appreciations realized are shared by its unit holders in proportion to the number of
units owned by them. Thus a Mutual Fund is the most suitable investment for the common man
as it offers an opportunity to invest in a diversified, professionally managed basket of securities
at a relatively low cost.
Today, the mutual fund industry in the country manages around Rs 100,000 crore of assets, a
large part of which comes from retail investors. Markets for equity shares, bonds and other
fixed income instruments, real estate, derivatives and other assets have become mature and
information driven. Price changes in these assets are driven by global events occurring in
faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and
time to keep track of events, understand their implications and act speedily. An individual also
finds it difficult to keep track of ownership of his assets, investments, brokerage
dues and bank transactions etc.A mutual fund is the answer to all these situations. It appoints
professionally qualified and experienced staff that manages each of these functions on a full time
basis.
Fig 1.1: Working of Mutual Fund
The history of the mutual fund in India can be divided into 5 important phases:
1963-1987: The Unit Trust of India was the sole player in the industry. Created by an Act of
Parliament in 1963, UTI launched its first product, the Unit Scheme 1964, which is even today
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the single largest mutual fund scheme. UTI created a number of schemes such as monthly income
plans, children’s plan, equity oriented schemes and offshore funds during this period. UTI
managed assets worth Rs. 6700 crore at the end of this phase.
1987-1993: In 1987 public sector banks and financial institutions entered the mutual fund
industry. SBI mutual fund was the first non-UTI fund to be set up in 1987. Significant shift of
investors from deposits to mutual fund industry happened during this phase. Most funds were
growth oriented close-ended funds. By the end of this period, assets under UTI’s management
grew to Rs. 38,247 crore and public sector funds managed Rs. 8750 crore.
1993-1996: In 1993, the mutual fund industry was open to private players, both Indian and
foreign. SEBI’s first set of regulations for the industry were formulated in 1993, and substantially
revised in 1996. Significant innovations in servicing, product design and information disclosure
happened in this phase, mostly initiated by private sector players.
1996-1999: The implementation of the new SEBI regulations and the restructuring of the mutual
fund industry led to rapid asset growth. Bank mutual funds were re-cast according to SEBI
recommended structure, and UTI came under voluntary SEBI supervision.
1999-2002: This phase was marked by very rapid growth in the industry, and significant increase
in the market share of private sector players. Assets crossed Rs. 1,00,000 crore. the tax break
offer to mutual funds in 1999 created arbitrage opportunities for a number of institutional
players. Bond funds and liquid funds registered the highest growth in this period, accounting for
nearly 60% of the assets. UTI’s share of the industry dropped to nearly 50%.
Some of the major players in the Indian mutual fund industry:
ABN AMRO Mutual Fund
Benchmark Mutual Fund
Birla Mutual Fund
BOB Mutual Fund
Canbank Mutual Fund
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Chola Mutual Fund
Deutsche Mutual Fund
DSP Merrill Lynch Mutual Fund
Escorts Mutual Fund
Fidelity Mutual Fund
Franklin Templeton Investments
HDFC Mutual Fund
HSBC Mutual Fund
ING Vysya Mutual Fund
JM Financial Mutual Fund
Kotak Mahindra Mutual Fund
LIC Mutual Fund
Morgan Stanley Mutual Fund
PRINCIPAL Mutual Fund
Prudential ICICI Mutual Fund
Reliance Mutual Fund
Sahara Mutual Fund
SBI Mutual Fund
Standard Chartered Mutual Fund
Sundaram Mutual Fund
Tata Mutual Fund
Taurus Mutual Fund
UTI Mutual Fund.
HOW IS A MUTUAL FUND SET UP?
A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset Management
Company (AMC) and custodian. The trust is established by a sponsor/s that is like promoter of a
company. The trustees of the mutual fund hold its property for the benefit of the unit holders.
73
Asset Management Company (AMC) approved by SEBI manages the funds by making
investments in various types of securities. Custodian, who is also registered with SEBI, holds the
securities of various schemes of the fund in its custody. The trustees are vested with the general
power of superintendence and direction over AMC. They monitor the performance and
compliance of SEBI Regulations by the mutual fund.
SEBI Regulations require that at least two thirds of the directors of trustee company or board of
trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of
the directors of AMC must be independent. All mutual funds are required to be registered with
SEBI before they launch any scheme.
There are many entities involved and the diagram below illustrates the organizational set up of a
mutual fund:
Fig 1.2 Set up of Mutual Fund
Net asset value (NAV) of a scheme
Net asset value denotes the performance of a particular scheme of a mutual fund. Mutual funds
invest the money collected from the investors in securities markets. In simple terms, NAV is the
74
market value of the securities held by the scheme. Since market value of securities changes every
day, NAV of a scheme also varies on a day-to-day basis. The NAV per unit is the market value of
securities of a scheme divided by the total number of units of the scheme on any particular date .
For example, if the market value of securities of a mutual fund scheme is Rs 200 lakes and the
mutual fund has issued 10 lakh units of Rs 10 each to the investors, then the NAV per unit of the
fund is Rs 20. NAV is required to be disclosed by the mutual funds on a regular basis - daily or
weekly - depending on the type of scheme.
By Structure
Open–ended funds: Investors can buy and sell units of open-ended funds at NAV-related price
every day. Open-end funds do not have a fixed maturity and it is available for subscription every
day of the year. Open-end funds also offer liquidity to investments, as one can sell units
whenever there is a need for money.
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Types of Mutual Fund
Close-ended funds: These funds have a stipulated maturity period, which may vary from three
to 15 years. They are open for subscription only during a specified period. Investors have the
option of investing in the scheme during initial public offer period or buy or sell units of the
scheme on the stock exchanges. Some close-ended funds repurchase the units at NAV-related
prices periodically to provide an exit route to the investors.
Interval Funds: These funds combine the features of both open and close-ended funds. They are
open for sale and repurchase at a predetermined period.
By Investment objective
Growth funds: They normally invest most of their corpus in equities, as their objective is to
provide capital appreciation over the medium-to-long term. Growth schemes are ideal for
investors with risk appetite.
Income funds: As the name suggests, the aim of these funds is to provide regular and steady
income to investors. They generally invest their corpus in fixed income securities like bonds,
corporate debentures, and government securities. Income funds are ideal for those looking for
capital stability and regular income.
Balanced funds: The objective of balanced funds is to provide growth along with regular
income. They invest their corpus in both equities and fixed income securities as indicated in the
offer documents. Balanced funds are ideal for those looking for income and moderate growth.
Money market funds: These funds strive to provide easy liquidity, preservation of capital and
modest income. MMFs generally invest the corpus in safer short-term instruments like treasury
bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these
schemes hinges on the interest rates prevailing in the market. MMFs are ideal for corporate and
individual investors looking to park funds for short periods.
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Other schemes
Tax saving schemes: Tax saving schemes or equity-linked savings schemes offer tax rebates to
investors under section 88 of the Income Tax Act. They generally have a lock-in period of three
years. They are ideal for investors looking to exploit tax rebates as well as growth in investments.
Special schemes: These schemes invest only in the industries specified in the offer document.
Examples are Infotech funds, FMCG funds, pharma funds, etc. These schemes are meant for
aggressive and well-informed investors.
Index funds: Index Funds invest their corpus on the specified index such as BSE Sensex, NSE
index, etc. as mentioned in the offer document. They try to mimic the composition of the index in
their portfolio. Not only the shares, even their weightage is replicated. Index funds are a passive
investment strategy and the fund manager has a limited role to play here. The NAVs of these
funds move along with the index they are trying to mimic save for a few points here and there.
This difference is called tracking error.
Sector specific schemes: These funds invest only specified sectors like an industry or a group of
industries or various segments like ‘A’ Group shares or initial public offerings.
Benchmark Method
Under this method a comparison is made between the returns given by a market index and the
fund over a given period of time. If the returns generated by the fund as measured by changes in
NAV over that given period of time are greater than those generated by the benchmark then the
fund is deemed to have outperformed the market portfolio.
Sharps Ratio
This measure uses standard deviation as a measure to evaluate a fund's risk-adjusted returns.
Mathematically, it is arrived at by deducting the risk free returns from the returns generated by the
77
Measuring Performance of Mutual Funds
fund and dividing the residual figure by the standard deviation of the fund's returns. One thing that
has to be kept in mind while using this measure is that the ratio is not an absolute figure. Its real
utility lies in inter scheme comparison.
where,
S = Sharpe's Indexrp = average monthly return of fund rf = risk free return
The sharp ratio is the return generated over the risk free return, per unit of risk. Risk in this case
is to taken as funds standard deviation. As standard deviation represents the total risk
experienced by the fund, the sharps ratio generate the return generated by undertaking the all
possible risks. A higher sharps ratio is better as it represent the higher return generated per unit of
risk.
BETA-A measure is of the volatility or systematic risk of a security or a portfolio in
comparison to the market as a whole. A beta of 1 indicates that the security’s price will move
with the market. A beta of less than then 1 means that the security will be less volatile than the
market. A beta of greater than 1indicates that the security price will be more volatile than the
market. For example, if a stock beta is 1.2, it’s theoretically 20% more volatile than the market.
Beta is ascertained mathematically by finding the covariance of the returns of the scrip to those
of the market and then dividing it by the variance of the market returns. As a market profeesional
one is aware of his or her investment objective and how much risk he or she can assume and can
best descried whether to use monthly, weekly or daily pricing information for the calculation of
beta.
78
S = RP – Rf /p
Covariance (Portfolio’s NAV, market index)BETA(β)= Variance (Market Index)
ALPA-To analyze the performance of the investment manager you must not look only the
overall return of the portfolio , but also the risk of that portfolio For example they are two mutual
funds both are having the return of 12%, a rational investor will want the fund which is less risky.
Jensen’s method is one of the way which help us in determing if a portfolio is earning proper
return for its level of risk. If the value is positive then the portfolio is earning excess return.
R- Squared-R- Squares value ranges from 0 to 1. An r-square of 1 means that all the
movement of the securities are completely explained by the movement in the index. A high R-
square between (0.85 and 1) indicate the funds performance patterns have been in the line with
the index. A fund with the low R-square (.70 or less) does’nt act much like index.
P/B Ratio-This ratio is used to compare stocks market value with it’s book value. It is
calculated by dividing the current closing price of the stock by the latest quarter’s book value per
share. A low P/B ratio means that the stock is undervalued. However it could be means that
something is fundamentally wrong with the company.
P/E Ratio-A valuation ratio of a company’s current share price compared to its pre-earning
share.
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Stock PriceP/B Ratio= Total asset – Intangible asset and liability
Market value per shareP/E Ratio= Earning per share
ADVANTAGES OF INVESTING IN MUTUAL FUNDS
Diversification: A single mutual fund can hold securities from hundreds or even thousands of
issuers, far more than most investors could afford on their own. This diversification sharply
reduces the risk of a serious loss due to problems in a particular company or industry.
Professional management: Few investors have the time or expertise to manage their personal
investments every day, to efficiently reinvest interest or dividend income, or to investigate the
thousands of securities available in the financial markets. They prefer to rely on a mutual fund's
investment adviser. With access to extensive research, market information, and skilled securities
traders, the adviser decides which securities to buy and sell for the fund.
Liquidity: Shares in a mutual fund can be bought and sold any business day, so investors have
easy access to their money. While many individual securities can also be bought and sold readily,
others aren't widely traded. In those situations, it could take several days or even longer to build
or sell a position.
Convenience: Mutual funds offer services that make investing easier. Fund shares can be bought
or sold by mail, telephone, or the Internet, so you can easily move your money from one fund to
another as your financial needs change. You can even schedule automatic investments into a fund
from your bank account, or you can arrange automatic transfers from a fund to your bank account
to meet expenses. Most major fund companies offer extensive recordkeeping services to help you
track your transactions, complete your tax returns, and follow your funds' performance.
DISADVANTAGES OF INVESTING IN MUTUAL FUNDS:
No Guarantees: No investment is risk free. If the entire stock market declines in value, the value
of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors
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encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on
their own. However, anyone who invests through a mutual fund runs the risk of losing money.
Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses.
Some funds also charge sales commissions or "loads" to compensate brokers, financial
consultants, or financial planners. Even if you don't use a broker or other financial adviser, you
will pay a sales commission if you buy shares in a Load Fund.
Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20 to 70
percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay
taxes on the income you receive, even if you reinvest the money you made.
Management risk: When you invest in a mutual fund, you depend on the fund's manager to
make the right decisions regarding the fund's portfolio. If the manager does not perform as well
as you had hoped, you might not make as much money on your investment as you expected. Of
course, if you invest in Index Funds, you forego management risk, because these funds do not
employ managers.
WHAT IS ENTRY AND EXIT LOAD?
Some Asset Management Companies (AMC’s) have sales charges, or loads, on their funds (entry
load and/or exit load) to compensate for distribution costs. Funds that can be purchased without a
sales charge are called no-load funds. Entry load is charged at the time an investor purchases the
units of a scheme. The entry load percentage is added to the prevailing NAV at the time of
allotment of units. Exit load is charged at the time of redeeming (or transferring an investment
between schemes). The exit load percentage is deducted from the NAV at the time of redemption
(or transfer between schemes). This amount goes to the Asset Management Company and not
into the pool of funds of the scheme.
OPTIONS FOR STRUCTURING RETURNS TO AN INVESTOR
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DIVIDEND OPTION-Investors, who choose a dividend option on their investments, will
receive dividends from the mutual funds, as and when such dividends are declared. Dividends are
paid in the form of warrants, or are directly credited to the investors’ bank accounts. There are
further choices in the distribution of dividend. In a normal dividend plan, periodicity of dividend
is left to the fund managers, who may pay annual and/or an interim dividend. Though investors
know that they would earn a dividend income from their further investment, the timing of the
payout is decided by the fund managers. The variants to the normal dividend plan are pre-
specified distributions schedules. Mutual funds provide investors the option of receiving
dividends at pre-determined frequencies, which can vary from daily, weekly, monthly, quarterly,
half-yearly and annually. Investors can choose the frequency of dividend distribution that suits
their requirements. Not all mutual funds provide all of these frequencies as choices, though.
Investors can choose an income distribution frequency from the choices available in a particular
mutual fund product..
GROWTH OPTION-Investors who do not require periodic income distributions can choose the
growth option, where the income earned are retained in the investment portfolio, and allowed to
grow, rather than being distributed to the investors. Investors with longer-term horizons, and
limited requirements for income, chosen this option. The return to the investor who chooses a
growth option is the rate at which initial investment has grown over the period for which he was
invested in the fund. The NAV of the investor choosing this option will vary with the value of the
investment portfolio, while the number of units held will remain constant
RE- INVESTMENT OPTION-Mutual funds also provide another option to investors in the
form of re-investment. Investors re-invest the dividends that are declared by the mutual fund,
back into the fund itself, at NAV that is prevalent at the time of re-investment. In this option, the
number of units held by the investor will change with every re-investment. The value of the units
will be similar to that under the dividend option.
Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in
terms of their structure and functioning. As is the case with mutual funds, investors in ULIPs are
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Comparison between ULIPS and Mutual fund
allotted units by the insurance company and a net asset value (NAV) is declared for the same on a
daily basis.
Similarly ULIP investors have the option of investing across various schemes similar to the ones
found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to
name a few. Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance
component.
However it should not be construed that barring the insurance element there is nothing
differentiating mutual funds from ULIPs.
Points of difference between the two:
1. Mode of investment/ investment amounts-Mutual fund investors have the option of either
making lump sum investments or investing using the systematic investment plan (SIP) route
which entails commitments over longer time horizons. The minimum investment amounts are
laid out by the fund house
ULIP investors also have the choice of investing in a lump sum (single premium) or
using the conventional route, i.e. making premium payments on an annual, half-yearly, quarterly
or monthly basis. In ULIPs, determining the premium paid is often the starting point for the
investment activity.
This is in stark contrast to conventional insurance plans where the sum assured is
the starting point and premiums to be paid are determined thereafter.
ULIP investors also have the flexibility to alter the premium amounts during the policy's
tenure. For example an individual with access to surplus funds can enhance the
contribution thereby ensuring that his surplus funds are gainfully invested; conversely an
individual faced with a liquidity crunch has the option of paying a lower amount (the
difference being adjusted in the accumulated value of his ULIP). The freedom to modify
premium payments at one's convenience clearly gives ULIP investors an edge over their
mutual fund counterpart
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.
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For example equity-oriented funds can charge their investors a maximum of 2.5% per annum
on a recurring basis for all their expenses; any expense above the prescribed limit is borne by
the fund house and not the investors Similarly funds also charge their investors entry and exit
loads (in most cases, either is applicable). Entry loads are charged at the timing of
making an investment while the exit load is charged at the time of sale.
Insurance companies have a free hand in levying expenses on their ULIP products with
no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and
Development Authority. This explains the complex and at times 'unwieldy' expense
structures on ULIP offerings. The only restraint placed is that insurers are required to
notify the regulator of all the expenses that will be charged on their ULIP offerings.
Expenses can have far-reaching consequences on investors since higher expenses translate
into lower amounts being invested and a smaller corpus being accumulated. ULIP-related
expenses have been dealt with in detail in the article "Understanding ULIP expenses”.
3. Portfolio disclosure-Mutual fund houses are required to statutorily declare their
portfolios on a quarterly basis, albeit most fund houses do so on a monthly basis. Investors get
the opportunity to see where their monies are being invested and how they have been
managed by studying the portfolio.
There is lack of consensus on whether ULIPs are required to disclose their portfolios. During
our interactions with leading insurers we came across divergent views on this issue.
While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory,
the other believes that there is no legal obligation to do so and that insurers are required to
disclose their portfolios only on demand.
Some insurance companies do declare their portfolios on a monthly/quarterly basis. However
the lack of transparency in ULIP investments could be a cause for concern considering
that the amount invested in insurance policies is essentially meant to provide for contingencies
and for long-term needs like retirement; regular portfolio disclosures on the other hand
can enable investors to make timely investment decisions.
4. Flexibility in altering the asset allocation-As was stated earlier, offerings in both the mutual
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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 debtinstruments (debt funds)
can be found in both ULIPs and mutual funds.
If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from
the same fund house, he could have to bear an exit load and/or entry load.
On the other hand most insurance companies permit their ULIP inventors to shift investments
across various plans/asset classes either at a nominal or no cost (usually, a couple of switches are
allowed free of charge every year and a cost has to be borne for additional switches).
Effectively the ULIP investor is given the option to invest across asset classes as per his
convenience in a cost-effective manner.
This can prove to be very useful for investors, for example in a bull market when the ULIP
investor's equity component has appreciated, he can book profits by simply transferring the
requisite amount to a debt-oriented plan.
5. Tax benefits-ULIP investments qualify for deductions under Section 80C of the Income Tax
Act. This holds good, irrespective of the nature of the plan chosen by the investor. On the
other hand in the mutual funds domain, only investments in tax-saving funds (also referred
to as equity-linked savings schemes) are eligible for Section 80C benefits.
Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds 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
Mutual fund’s
Primary objective investment
Cost even costs through the term
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Investment duration: works out for medium term, long-term investor. Risky for short
term Investors.
Flexibility: very flexible. Plenty of scope to correct your mistake if you made any wrong
Investment decision. You can easily shuffle your portfolio in MFs.
Liquidity: very liquidity. You can sell your MFs units any time (except ELSS or
specified Lock in period scheme)
Investment objective: MFs can be used as your vehicle for investment to achieve
different objectives. (E.g. buying a car three years from now, down payment for a home
five years from now. Children’s marriage 15 years from now. Retirement planning 25
years from now
Tax implication: all investment in MFs does not qualify for section 80c. Only investment
in ELSS qualifies for section 80c. MFs returns on equity MFs are exempt from long-term
capital gains tax. Unless tax laws change in the future.
Strings attached: nothing too substantial. At most pay a small exit load if any.
ULIPS
Primary objective: Protection + investment
Costs: upfront costs over the first few years – high, but over the policy term, ULIPs are
comparing better.
Investment duration: work out only for long-term investor.
Flexibility: flexibility is limited to moving across the different funds offered with your
policy. Correcting mistakes can turn out to be expensive. Moving funds from ULIP of a
different fund house can be expensive.
Liquidity: limited liquidity. Need to stay invested for the minimum number of years
specified before you can redeem.
Investment objective: ULIPs can ideally be used for achieving only long term goals
(children’s marriage, education, retirement planning) as the charges are usually higher in
the initial years and it is more of a longer term product.
Tax implication: ULIPs provides tax benefit under section 80c. We are moving from
EEE to EET. No clarity if ULIPs will be taxed under EET.86
Strings attached; some strings attached for your policy to be in effect. Minimum number
of premiums needs to be paid.
In case of MFs there r only 3 types of charges applicable –
1. Entry Load - It can be avoided if u invest directly to ur MF bypassing ur MF agent.
2. Exit Load - It can also be avoided by remaining invested for certain time period in that
particular plan.
3. Fund Management Charge - It`s charged as a %age of total assets under the plan. Normally
it varies from 0.25% to 2.5% depending upon type of funds (Debt to Eq.) as well as expertise of
fund co. for a same set of MF plans, lower FMC Plan is always advisable for investment.
In case of ULIP following 4 types of charges r applicable.
1. Prem. allocation Charge - It may vary from as low as 1% to as high as 65-70% of ur first
year prem. & reduced year after year or may remain same at a constant level say 4% or 5%.
2. Mortality Charges - It`s the basic cost of insurance & again it varies among Ins. cos.
3. Policy admin charges - Some ULIPs charge as low as 20 Rs. per month where as some charge
as high as 200-300 Rs. per month. Again not constant among Ins. cos.
4. Fund Management charges - From 0.5% to 2.5% depending upon the type of Fund (debt to
Equity).
Need of study
As we now that there was a big controversy between SEBI and IRDA whether ulips is insurance
product or not. Finally this controversy is solved and ulips is an insurance product. So it is very
important to determine the difference between ulips and mutual fund and preference of investors
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regarding this investment option.
1) This study has been conducted to find out the difference between ulips and mutual fund
because all the AMC are targeting the same customers for both ulips & mutual fund
2) The requirement of this research is to know the behavior of investors who have invested
in ulips & mutual fund
3) This study tries to know their Current scenario for these two investment options
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Chapter 2
Review of Literature
Review of Literature
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This chapter deals with the empirical work done at National and international level by various
management scholars in the area. A literature review is a body of text that aim to review the
critical point of current knowledge on a particular topic .Its ultimate goal is to bring the reader
up to date with current literature on the topic and forms the basis for another goal such as the
justification for future area of research.
Prabakar(2010) in his article “Govt's ULIP ruling to hit MFs hard” has remarked that
Government's decision to treat unit-linked insurance products (ULIPs) as insurance instruments
and allow them to be regulated by Insurance Regulatory and Development Authority of India
(IRDA) will boost the growth of ULIPs. But, equity-oriented mutual funds, which are governed
by the Securities and Exchange board of India (Sebi), will be affected adversely because of the
stiff regulation on the payment of commission to sales agents.
Subramanyam (2010) in his article “NFOs make hay after Sebi bars insurers from
launching Ulips” has remarked that
New fund offers, or NFOs, by mutual funds have seen a resurgence after the capital market
regulator banned life insurance companies from launching new unit-linked insurance plans
(Ulips).
Agarwal (2010) in his article “Back to the real issue: mis-selling” has remarked that
Sebi has, over the last year, made mutual funds extremely transparent and relatively low cost.
These funds cannot levy any front-end fee and any fee over 1% at the time of the customer’s exit
goes back to the scheme to benefit the fund’s remaining customers. Further, if an intermediary
wishes to charge a fee to the customer, it needs to be billed directly and transparently. As a result,
mutual funds have to now squarely focus on performance and good distributors who don’t rely
on mis-selling. Distributors have long thrived on high fees from mutual funds for every new sale.
It was profitable, therefore, to periodically convince the same set of investors to switch schemes.
Mis-selling such as this is now less rewarding.
Shah (2010) in his article “Finance ministry to call the shots on turf wars” has remarked that
The finance ministry made it clear that it will call the shots on turf wars between financial sector
regulators through a Bill introduced in Parliament on Tuesday. But fresh doubts have arisen
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about what the law ministry had earlier said on which regulator should be in charge of Ulips
(unit-linked insurance plans) The Securities and Insurance Laws (Amendment and Validation)
Bill, 2010, moved by finance minister Pranab Mukherjee in the Lok Sabha, includes a couple of
changes to the 18 June ordinance settling the turf war over Ulips. The Bill also stuck to the
ordinance’s line that Ulips would be supervised by the insurance regulator, the Insurance
Regulatory and Development Authority (Irda).
Rosita(2010) in her article “IRDA regulates ULIPS, in a relief for investor” has remarked thatULIPS would be under the jurisdiction of IRDA by annoying some guidelines which insurance
has to adopt to like the lock in period increased 5 years from 3 years.
Arora, Singh & jain(2009) in their research “Exploring customer preference for mutual
fund” has remarked that
Past performance, core product features, expense ratio, risk-return trade off and liquidity are the
five most important factors in a mutual fund. Hence investor prefer benefit for the cost given,
flexible return, additional facilities, proper performance delivery, service quality and focus of
service provided beside the core product facilities offered. A prudent product design, by adding
the features expected by the investors that are spelt out in this research will make the mutual fund
scheme more attractive to the investors.
Kumar (2009) in his study titled “Do Investors Behave Rationally in Stock Markets- A
Behavioral Finance Perspective” remarked that
A new perspective came into existence which is referred to Behavioral Finance that is an
explanation of the various Puzzles of Finance and these Puzzles are : Stock Price, Under- &
Overreactions, Excessive trading & the gender puzzle, financial hypes & panic, the Equity
premium Puzzle & the winner/loser Puzzle. This perspective based on the alternative notion that
Investors, or at least significant majority of them are subject to Behavioral biases that mean their
financial decisions can be less than fully rational.Confidence amongst Investors as a whole is the
key factor in determining how market behaves.
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Gupta and Panwar (2009) in their article titled “Investment performance of mutual fund
income Schemes: an analysis” has remarked that
In the present scenario, the mutual fund investor in India has so many schemes to choose from
and the decision to invest has become a difficult one. With a rapid increase in the number of fund
houses and schemes, investors face a greater challenge in evaluating a particular fund’s
performance. However, the use of a systematic performance evaluation technique helps the
investors to take wise decisions so that they are able to achieve their investment objectives.
Performance data quoted above represents the past performance. Due to market volatility, current
performance may be less or higher than the figures shown. Investment return and principal value
will fluctuate so that upon redemption, shares may be worth more or less than their original cost.
Aggarwal & Nayak (2009) in their study titled “A Study of Investors’ expected rate of
return on their Investment” analyzed that
In particular, this study aims at understanding & interpreting the behaviour of working
employees of Private & Public sector on their Investment decisions.The study shows how an
Investment is chosen on the basis of expected rate of return gets affected by demographic
variables, which helps to advise the clients better.The result shows that 68% of the Investors
reveal that maximum Investors are likely to invest in Stock market & Mutual fund.The data
suggests people those mostly invest in the market are Service class Investors who don’t have
enough time to keep continuous watch on the market Fluctuation; they need regular assistance
from their relationship manager who is assigned to them.
Khurana (2009) conducted a survey on “An Empirical Study on ULIPs of Selected Private
Sector Life Insurance Companies” has remarked that
In his study he concluded that the pension plans of ICICI Prudential are most reasonable as far as
charges in different ULIPs are concerned. The performance of HDFC SL Unit Linked Plans is
better than other plans. The difference between the performances of pension plans of selected
companies is not much significant. Also, the performance of pension funds does not differ
significantly from their benchmarks.
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Prasad (2009) in his study on “ULIP- The Tasters Perception on the Mixed Bag of Fruits”
concluded that
Majority of investors prefer insurance as an investment for mitigating the future risk. They are
interested in ULIPs as they offer fund o options and flexibility. The variables affecting the choice
for ULIP products are correlated and they are fund management charges, reliability of insurer,
insurance coverage charges. Demographic factors also have significant impact over the level of
investment in ULIPs. Also, agents are the most preferred channels of distribution of insurance
policies.
Raju(2009) in his article “Factors determining life insurance” has remarked that
Life insurance mainly preferred because of risk coverage and tax benefit. Majority of them govt
owned LIC for getting insured because of security. Better customer service and high return are
the main reasons behind the preference of private sector insurance companies. Life insurance
coverage can be expended through better schemes with higher return. The govt should also
ensure safety and security of the saving of the public mobilized by life insurance companies
though strict enforcement of regulatory measures.
Ohio (2009) explore in his article “ Indian Insurance Industry” has remarked that
Insurance is the subject matter of solicitation Has little relevance to non life insurance products,
primarily because, customers have no ambiguity about the product being insurance, and hence
scope for misleading information by solicitors. These disclosure regulations may not be
construed as detrimental to marketability of insurance products or to be taking the tone of
disclaimers. It is in the best interest of insurers and intermediaries to follow these norms
voluntarily rather than under compulsion of regulations
Soni(2009) in his article” ULIP and investment instruments “ has analyzed that
All investment instruments have their unique set of advantages to offer. It is vital for
respondents to be aware of the nuances in a particular offering and make informed decisions.
When investing in a Unit Linked Insurance Plan, popularly called ULIP, it is to be borne in mind
that ULIP’s being a market linked instrument will fetch good returns on a long term basis. The
basic advantage of a ULIP over other investment instruments is that it offers the twin benefits of
life insurance as well as an investment.93
Jha (2009) in his article “ELSS – Save tax and create wealth” has remarked that
Insurance scheme seeks to build a diversified portfolio comprising of stocks of companies with
strong fundamental that is available. It tries to develop a portfolio wherein stock is selected on
the basis of intrinsic value of the company. The best way to select the ELSS is through
systematic investment plan.
Choudhary (2008) in his study titled “ The Components of Investments Performance of
Fund Managers: Evidences from Indian Capital Market” remarked that
The Investment Performance of the Investment Managers can be judged on the various
components such as Market Timing, Stock Selection, Risk Bearing & Diversification.This shows
that Investment managers’ stock selection, risk bearing & diversification performance was not
affected by choice of Benchmark Indices but market timing performance was quite sensitive to
choice of market proxies.
Archana and Shajahan(2009) in their study “A study on factor influencing the investment
on mutual funds “analysed that
Safety, risk and high return sound to be major factor influencing the investment decision in
mutual fund consistent return and availability of funds are the special feature that investors look
on fund. Liquidity, low risk benefit are reason for choosing mutual fund.
Kumar and Sudalaimuther(2008) in their study “A study on investors perception towards
Mutual funds” analysed that
Invested reference towards the Mutual funds sectors, sechemes,type,purchase of Mutual funds
units, level of risk undertaken by investors option on factors influenced to invest in Mutual funds
Sinha (2008) in his study titled “Human Behavior & Investments” found that
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People’s emotions, biases and misadjustments affect their Investment decisions most even if it is
assumed that human beings are rational.Most Financial theories are based on the idea that
everyone takes careful account of all available information before making Investment decisions.
Das (2008) in his research paper “Mutual fund v/s Life insurance” has remarked that
Behavior analysis of retail investors has remarked that the investment pattern provide more or
less the same service there exit the difference depending on the the level of education. It is
observed that investors with graduate level of academic qualification are investing more in life
insurance and the professional are investing more in mutual fund. Male investors are more as
compare to females in Indian capital market. It was also analyzed that major of the people are
investing with with the objective of capital growth followed by tax saving and only few are
investing in retail plans. He also concluded that majority of investor is of view that public sector
insurance is better than private sector and the brand image and the past performance of mutual
fund are highly positively correlated.
Kumar (2008) in his article “Bancassurance in India: Issues & Implications” has remarked
that
With the opening up of insurance sector and so many players entering in the insurance industry
it is required by the insurance company to come up with well established infrastructure facilities
with good call centre service to attract and provide information to customers regarding different
good policies and their premium pay scheme.The size of country, a diverse set of people
combined with problems of connectivity in the rural areas, Makes insurance selling in India is a
very difficult task. Life insurance companies require good distribution strength and tremendous
man power to reach out such a huge customer base.
Bauer and Frehen(2008) in “In non life insurance managing for result” analyzed that
The pension fund performance. The research revealed that the pension funds have closely
performed in relation to its benchmark and multiple components. It was observed that the
pension funds are less exposed to hidden agency cost in comparison to mutual funds
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Motwani, in his paper “Indian Mutual Fund Industry - The Road Ahead!!!!” (Oct. 25,
2008)
Examined the evolution of the Indian mutual fund industry and then progresses with the
comparison of the current scenario of Indian Mutual Fund Industry. It also encompasses certain
economic conditions like the savings of the people in the initial phase & what it is today. And
based on the savings how has the change in investment strategies in Mutual fund industry is been
analyzed.
Rao and Mishra(2007) in their research paper “Mutual fund: A resource mobilize in
financial market” has remarked that
The main function of all the financial institutes is financial intermediation i.e. facilitating the
flow of saving from common man to industrial house .Resource mobilization by mutual fund is
an important activity in the capital market. According to the study mutual fund would be one of
the major instrumental wealth creation and wealth saving in the years to come. The mutual fund
growth is estimated at about 50% much higher than that of bank fixed deposit which is growing
at about 20%.
Malik and Mittal (2007) in their study “performance evaluation of Mutual fund in India: A
risk adjusted analysis”, analyzed that
Past few years have witnessed the proliferation of Mutual funds as International diversification
have become a reality to reduce market risks & attractiveness to many investors around the
globe. The return if measured in US $ would have been higher during the last five years
Lee & lerro (2003) in their study titled “Optimizing the Portfolio Selection for Mutual
Funds” analyzed that
A goal programming model which, once the Investor’s objectives are quantified, determines the
optimal Portfolio from a set of efficient Portfolios. This model seeks an Indifference Tradeoff
condition between acceptable risk and desired return and hence, helps in selecting the fund which
best suits the Investor’s needs.
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Dash (2001), his paper titled ‘Basics Of investment’ he discusses
The basic of investment and need for investment. Investment benefits both economy and the
society. It is an outgrowth of economic development and the maturation of modern capitalism.
For the economy as a whole, aggregate investment sanctioned in the current period is a major
factor in determining aggregate demand and, hence, the level of employment. In the long
term, current investment determines the economy’s future productive
capacity and, ultimately, a growth in the standard of living. By increasing personal wealth,
investing can contribute to higher overall economic growth and prosperity.
Nagpal (2000) in his paper titled “Psychology of Investments and Investor’s Preferences”
founded that
Every individual investor must follow three principles of investing.Using a long-term investing
approach, following the right strategy to maximize the return on investment and proper
allocation of investible funds. While applying these three principles, an individual investor
has to confront his/her demographics, lifestyle and investment psychology. The knowledge of
all these aspects is imperative for all progressive investors, researchers, financial consultants,
academicians, students and the marketer of the financial products.
Jayadev (1996) in his research”Mutual fund performance: An analysis of monthly return”
has remarked that
Fund manager can improve the return to the investors by increasing the systematic risk of the
portfolio which inturn can be done by identifying highly volatile share. Better return can earned
by adopting the market timing strategy and selecting the under priced securities. Risk can be
reduced with the help of diversification.
Sung & Hanna (1996) in their study titled “ Factors Related to Risk Tolerance”, analyzed
that
Education is also a factor that is thought to increase a person’s capacity to evaluate risks inherent
to the Investment Process & therefore endow them with a higher financial risk
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tolerance.However, he derives a model that suggests an element of circularity in this argument,
as the relative risk aversion of an Individual is shown to determine the rate of human capital
acquisition.
Yoo (1994) in his study titled “Behavioral factors affecting Investment Decisions” found that
The change in the risky asset holdings were not uniform. He found individuals to increase their
investments in risky assets throughout their working life time, and decrease their risk exposure
once they retire. While identifying the systematic patterns of investment behavior exhibited by
individuals found age and expressed risk taking propensities to be inversely related with major
shifts taking place at age 55 and beyond.
Babu, Chiranjeevi, Prasad & rao in their research “Unit linked Insurance Plans – The
Tasters perception on the mixed bag of fruits” has finded that
Most of the investors prefer insurance for mitigating the future risk, agents are most preferred
channels of distribution of insurance policy, variables affecting the investors choice of ULIPs
product are correlated. Fund management charges, reliability of insurer, insurance coverage are
most affecting variables in the selection of ULIPs product by investors.
98
Objectives of the study
1. To know the customers awareness about Ulips and Mutual Fund.
2. To compare the investment in ULIPS plan with the Mutual fund.
3. To study the degree of risk involved in both.
4. To analyze the future prospective of these investment option.
99
Chapter 3
Research Methodology
100
Research Methodology: -
Research can be defined as systematic investigation to establish facts.
Research methodology is defined as a highly intellectual human activity used in the investigation of nature and matter and deals specifically with the manner in which the data is collected, analyzed and interpreted.
Conceptual Framework: -
The main theme of the research has been conceptualized within a framework to avoid disorder & ambiguity in the process of conducting the present study. The aim of the research project is to compare the Investment Portfolio of business and service class investors and to know their current portfolio with their risk bearing capability.
The study is conducted with the help of a Non-Disguised structures Questionnaire. The study made use of various factors like Demographic factors, Financial Attributes, risk tolerance level & preference for Investment products.
Research Design: -
Research design is a blueprint for any kind of research. Research design provides the glue that holds the research project together. A design is used to structure the research, to show how all of the major parts of the research project- the samples or groups, measures, treatments or programs, and methods of assignment- work together to try to address the central research questions. A research design lays the foundation for conducting the project.
Types of Research Design: -
1) Exploratory Design.2) Descriptive Design.3) Causal Design.
Exploratory Design: -
As its name implies, the objective of exploratory research is to explore or search through a problem or situation to provide insights and understanding. Exploratory research is characterized by flexibility and versatility with respect to the methods because formal procedures are not employed. This design can be used for following purposes:-
Formulate a problem or define a problem more precisely. Identify alternative course of action. Develop hypothesis.
101
Isolate key variables and relationships for further examinations. Gain insights for developing an approach to the problem.
For exploratory research these methods can be used:-
Experience Survey Pilot Study Statistical Data Literature
From above given methods PILOT STUDY is done to know the expectations of the market and is undertaken by the company before launch of a product.
Causal Design: -
Causal design is used to obtain evidence of cause and effect relationships. This kind of research is done in a controlled environment where one variable remains constant or fixed and it is tested against other variables. This design is basically used to know the degree of relationship between different variables. Causal research is appropriate for the following:-
To understand which variables are the causes and which are the effects of a phenomenon. To determine the nature of the relationship between the causal variables and the effect to
be predicted.
Descriptive Research Design: -
Descriptive research also known as statistical research, describes data and characteristics about the population or phenomenon being studied. It basically deals with everything that can be counted and studied. Descriptive research is pre planned and structured. A descriptive design requires clear specification of the WHO, WHAT, WHEN, WHERE, WHY and WAY (the six Ws) of the research.
The objective is to know the Percentage (%) of phenomenon in population.
All perceptual studies are come under Descriptive study. Where Comparison between two variables is done that is descriptive research. In this design the variables are being predicted.
In conducting this research study the Descriptive research design has been used. As this is a comparative study where the comparison between two investment option that ulips & mutual fund is done
Data Collection: -102
There are two types of data collection methods which are as following:-
1) Primary Research2) Secondary Research
Primary Research: -
Primary Research (also called Field Research) involves the collection of data that does not already exist. This can be through numerous forms, including Questionnaires & Telephone Interviews amongst others.
Secondary Research: -
Secondary research (also called desk research) involves the summary, collation and/or synthesis of existing research rather than primary research, where data is collected from, for example, research subjects or experiments.
In doing this research the both methods are being used. The Questionnaires are being prepared and filled by the people who are investing in ulips
& mutual fund The Secondary data is being collected from different magazines, newspaper & Journals.
For the Literature of review certain online journals has also been collected.
In doing this research the Questionnaire is used to collect the data.
Sample : -
A subgroup of the elements of the population selected for participation in the study.
The sample for this study all people who invest ulips & mutual fund
Sampling Unit: -
It is a basic unit containing the elements of the population to be sampled.
The sampling unit in this research is all the people of Ludhiana who invest in ulips or mutual fund
Sample Size: -
It refers to the number of elements to be studied in a study/research.
The Sample Size for this study is 100.
103
Sampling Technique: -
In doing this research Convenience Sampling Technique is used.
A Convenience Sampling refers to a technique that attempts to obtain a sample of convenient elements. The selection of sampling units is left primarily to the Interviewer.
So, in doing this research the walking clients & the investors who comes to HSBC investdirect are used for Convenience Sampling Technique.
104
Chapter 4
Analysis of Data
105
Table 4.1 Percentage of people who have invested in ULIPS, in Mutual fund and both
Investment option No. of respondents Percentage(%)
ULIPS 30 30
Mutual Fund 51 51
Both 19 19
Total 100
Fig 4.1 Percentage of people who have invested in ULIPS, in Mutual fund and both
Analysis- It is clear from the above table that 30% of the respondents invest in ULIPs, 51% in
mutual fund & 19% in both.
Interpretation- Mutual funds are more preferred investment avenue comparative to ULIPS
because more number of people prefer mutual fund comparative to ULIPs and there are only few
people who are investing in both ULIPs and Mutual fund
Table 4.2:- Annual income of the investors
Annual income
ULIPS
No. of PercentageResponses
Mutual fund
No. of PercentageResponses
Both
No. of PercentageResponses
Below- 2 lac 5 17% 7 14% 1 5%Rs 2 lac- 4 lac 6 20% 8 16% 2 11%Rs 4 lac- 6 lac 12 40% 19 37% 5 26%Above 6 lac 7 23% 17 33% 11 58%Total 30 51 19
106
Below 2 lacs 2lacs-4 lacs 4lacs-6 lacs Above 6 lacs0%
10%
20%
30%
40%
50%
60%
70%
17%20%
40%
23%
14% 16%
37%33%
5%
11%
26%
58%
ULIPSMutual FundBoth
Fig 4.2:- Annual income of the investors
Analysis:- Among the people who invest only in ULIPs 17% belongs to income group of below
2 lacs, 20% belongs to the income group of 2 lacs -4 lacs, 40% belongs to income grpup of 4lac-
6 lacs & 23% above 6 lacs. In the case of mutual fund 14% belongs to the income group of below
2 lacs, 16% to the income group of 2 lacs- 4 lacs, 37% to the income group 4 lacs- 6lacs & 33%
to the income group of above 6 lacs. People who invest in both ulips and mutual fund 5%
belongs to the income group of below 2 lacs, 11% to the income group of 2 lacs- 6 lacs, 26% to
the income group of 4 lacs- 6 lacs & 58% to the income group of above 6 lacs.
Interpretation- Income vise investment is almost same in both ULIPS and Mutual Fund people
with high income group are more likely to invest their money comparative to the low income
group. But it is clear from the graph that people who are investing in both ULIPS and Mutual
fund are having income above than 6 lakhs.
Table 4.3:- Factors consider by investors before investing in ULIPS and Mutual fund
Factors No. of Responses PercentageSafety of Principal 39 39%High Return 42 42%Maturity Period 12 12%Terms and Conditions 7 7%Total 100
107
Safety of Principal High Return Maturity Period Terms and Conditions0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
39%42%
12%
7%
Fig 4.3:-Factors consider by investors before investing in ULIPS and Mutual fund
Analysis- As seen in the above table among the various factors considered by investors before
investing their money in ULIPs and Mutual fund 42% people feel that high return is more
important, 39% of the respondents consider safety of principal, 12% to the maturity period & 7%
to the terms and condition
Interpretation- The most important factor which is highly considered by the investors before
investing their money in ULIPS or Mutual fund is the return earned by them and after return the
second factor is the safety of the principal. So we can say that people wants their investment to
get the good return along with the safety of principal
Sources No. of responses Percentage
Journals 5 5%
Reference Group 21 21%
Television 5 5%
Brokers 66 66%
Newspaper 3 3%
Total 100
Table 4.4:- Information Sources helpful to the investor in making investment decision
108
Journals Reference Group Television Brokers Newspaper0%
10%
20%
30%
40%
50%
60%
70%
5%
21%
5%
66%
3%
Fig 4.4:- Information Sources helpful to the investor in making investment decision
Analysis- 66% people feel that their investment decision are made with the help of brokers, 21%
people feel that reference group plays an important role while making their investment decision,
5% gets the information from the journals, 5% from the television & 3% of the respondents feel
that they get the information from the news paper.
Interpretation- People feel that brokers plays an important role while making their investment
decision and after broker people think that their investment decision are made with the help of
reference groups. The reason for this may be that there is mostly push selling in case of Ulips &
in case of mutual fund broker may provide better information regarding various schemes.
Table 4.5:- Preference of investor regarding different types of funds
Types of fund No. of responses Mean
Equity based fund 45 0.215
Debt based fund 24 0.115
Balanced fund 56 0.268
Open ended fund 64 0.306
109
Close ended funds 20 0.096
Total 209
Equity based fund Debt based fund Balanced fund Open ended fund Close ended fund0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.215
0.115
0.268
0.306
0.096
Fig 4.5:- Preference of investor regarding different types of mutual funds
Analysis- As clear from the above table the mean score of the open ended fund is very high
comparative to other types of mutual fund and the mean sore of equity & balanced based fund is
also good, but it is very less for debt based & close ended funds
Interpretation- Open ended funds are more popular among the investors the reason for this may
be that the Open-end funds do not have a fixed maturity and it is available for subscription every
day of the year. Open-end funds also offer liquidity to investments, as one can sell units
whenever there is a need for money.
Table 4.6:-The reasons for investing in ULIPSReason Strongly
Agree(2)
Agree
(1)
Neutral
(0)
Disagree
(-1)
Strongly Disagree(-2)
Total Mean
Tax Rebate
98 31 0 -7 -4
118 1.18
110
49 31 7 211
Life Insurance
106 34 0 -3 -4
133 1.33
Capital Growth
76 34 0 -9 -5
96 .96
Investment of excess money 44 23 0 -29 -26
12 .12
Tax Benefit Life Insurance Capital Growth Investment of excess mone
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.18000000000001
1.33
0.960000000000001
0.12
Fig 4.6:- The reasons for investing in ULIPS
Analysis- Among the various reasons of investing in ULIPs respondents agree that capital
growth is the important reason for investing in ULIPs ,but tax benefit and life insurance are the
most important reason for investing in ulips because its mean lies between strongly agree &
agree. People are neutral for the reason investment of excess money
Interpretation- It is clear from the above graph that most of the people invest in ULIPS to get
the insurance facility and the second important reason is get the benefit of tax rebate. All the
plans of ulips provide tax rebate therefore it is one of the important reason of investing in ulips.
Table 4.7:- The reason for investment in Mutual FundReasons Strongly
Agree(2)
Agree
(1)
Neutral
(0)
Disagree
(-1)
Strongly Disagree(-2)
Total Mean
Tax Rebate
31 .31
111
53 34 8 3 2
38 34 14 9 5
22 23 13 1329
29 26 8 21 16
58 26 0 -21 -32Capital Growth
96 39 0 -6 -4
125 1.25
Investment of excess money 64 28 0 -24 -18
50 .50
Tax Rebate Capital Growth Investment of exess money0
0.2
0.4
0.6
0.8
1
1.2
1.4
0.310000000000002
1.25
0.5
Fig 4.7:- The reason for investment in Mutual Fund
Analysis- The mean of capital growth lies between strongly agree & agree. So it the most
important reason of investing in mutual fund. Tax rebate lies between neutral & agree.
Respondents are neutral for the reason investment of excess money because its mean is 0.5
Interpretation- It can be easily interpretated that people invest in mutual fund for the
appreciation of the capital invested by them and after this the second important reason is
investment of excess money which is kept with them only few people think that they invest in
mutual fund to get the advantage of tax rebate the reason may be that all the mutual fund doesnot
provide tax deduction.
Table 4.8:- Preference of ULIPS or mutual fund on the basis of following factors
Advantages ULIPS
Mutual fund
Diversification 38 62
112
48 39 5
28 9
2
732
6
24
Professional Management 40 60Low cost 34 66Liquidity 17 83Flexibility 12 88
Diversification Profesional management
Low cost Liquidity Flexibility0%
20%
40%
60%
80%
100%
120%
38% 40% 34%17% 12%
62% 60% 66%83% 88% Mutual fund
ULIPS
Fig 4.8:- Preference of ULIPS or mutual fund on the basis of following factors
Analysis- From the above table it is clear that for the advantage of diversification 38% people go
for ULIPs & 62% for mutual fund. For professional management 40% for ulips & 60% for
mutual fund, for the advantage of low cost 34% for ulips and 66% for mutual fund, for liquidity
17% for ulips & 83% for mutual fund, for flexibility 12% of respondents prefer ulips & 88%
prefer mutual fund.
Interpretation- Mutual fund are preferred investment option comparative to ulips the most
important reason for this is flexibility and Liquidity provided by the mutual fund plans. Investors
feel that mutual funds are more liquid and flexible comparative to ulips
Table 4.9:- Investment in ULIPS and Mutual fund by risk profile
Risk profile Ulips
No of responses Percentage
Mutual fund
No. of responses Percentage
113
Low risk 16 53% 6 12%
Moderate risk 10 33% 31 61%
High risk 4 14% 14 27%
Total 30 51
Low risk Moderate risk High risk0%
10%
20%
30%
40%
50%
60%
70%
53%
33%
14%12%
61%
26%
ULIPSMutual fund
Fig 4.9:- Investment in ULIPS and Mutual fund by risk profile
Analysis- Among 30 respondents who invest in ULIPs 53% of respondents feel that they take
low risk profile, 33% feel that they take moderate risk & 14 % fe l that they take moderate risk.
From the 51 people who invest in mutual fund 12% invest in low risk profile, 61% in moderate
risk & 26% in high risk profile.
Interpretation- It is clear from the above graph that if the risk taking capability of an individual
is low than he will prefer to invest in Ulips may be because he is getting insurance plus
investment facility, if the risk taking capability is moderate or high than people prefer mutual
fund.
Table 4.10:- Expected annual Return from both ULIPS and Mutual funds
Annual Return ULIPS Mutual fund
114
No. of responses Percentage(%) No. of responses Percentage(%)Less than 10% 2 7 1 2
11-15% 11 36 5 1015-20% 14 47 18 35Above 20% 3 10 27 53Total 30 51
less than 10% 11-15% 15-20% 20-25%0%
10%
20%
30%
40%
50%
60%
7%
36%
47%
10%
2%
10%
35%
53%
ULIPSMUTUAL FUND
Fig 4.10:- Expected annual Return from both ULIPS and Mutual fund
Analysis- From the 30 people who invest in ULIPs 7% expect the return of less then 7%, 36% of
the respondents expect the return of 11-15%, 47% of the people expect the return of 15-20% &
only 10% expect the return of 20-25%. Among the 51 respondents who invest in only mutual
fund 2% expect the annual return of less then 10%, 10% of the people are having the expected
return 0f 11-15%, 35% people expect the annual return of 15-20% & 53% expect 20-25% annual
return.
Interpretation- It is clear from the graph that people who invest in mutual fund are expecting
high return than those who invest in ulips. So we can say that the basic reason of investing in
mutual fund is to generate good return from the investment.
Table 4.11:- Preferred tenure of investment for ULIPS and Mutual Fund
Duration ULIPS Mutual fund
115
No. of responses Percentage(%) No. of responses Percentage(%)Short term 2 7 6 12
Mid term 7 23 19 37
Long term 21 70 26 51
Total 30 51
Short term Mid term Long term0%
10%
20%
30%
40%
50%
60%
70%
80%
7%
23%
70%
12%
37%
51%
ULIPSMutual Fund
Fig 4.11:- Preferred tenure of investment for ULIPS and Mutual Fund
Analysis- Among the 30 respondents who invest in only ULIPs 7% of the respondents invest for
short term, 23% for mid- term & 70% for the long term. From the 51 repondents who invest in
only mutual fund 12% invest for short term, 37% for mid-term & 51% for the long term
Interpretation- The tenure of investment preferred by investors is almost same in both ulips and
mutual fund that is long term but, still the difference is that for tenure of short term and midterm
mutual fund are preferred comparative to ulips.
Table 4.12:- Awareness among peoples regarding the controversy of ULIPS
Opinion No of Responses Percentage
116
Yes 59 59%
No 41 41%
Total 100
59%
41%
yesno
Fig 4.12:- Awareness among peoples regarding the controversy of ULIPS
Analysis- 59% of people are aware regarding the controversy of ulips and among this 59% of
people 65% of investors think that this controversy of ulips will going to affect their investment
decision.
Interpretation-As we can see that many people are aware regarding the controversy of the of the
ulips and among the people who are aware regarding this controversy most of them feel that this is
going to effect their investment decision as from this controversy many people came to know that
negative points or about the lop holes of the Ulips
Table 4.13:- Preferred investment option for investing their money in future
117
Investment option No. of Responses Percentage
Mutual fund 69 69%
ULIPS 31 31%
Total 100
69%
31%
Mutual fundULIPS
Fig 4.13:- Preferred investment option for investing their money in future
Analysis-69% of people will like to reinvest their money in mutual fund
and only 31% people will invest their money in ulips.
Interpretation- So in coming years also mutual fund will preferred investment option
comparative to ulips. Future is good for mutual funds comparative to ULIPs.
118
Chapter 5
Result and Findings
Findings
119
People are aware regarding ulips &Mutual fund but, the awareness regarding mutual fund
is high comparative to ulips. People with high income group are more likely to invest their
money but, people who invest in both ulips and mutual fund mostly belongs to the income
group of more than 6 lacs. Broker and reference group plays an important role while
making an investment decision of an investor. Open ended funds & closed funds are more
popular among investors of Ludhiana.
Insurance and tax rebate is the most important reason for investing in ulips & people are
investing in mutual fund for the apprication of the capital invested by them .among the
various adventages liquidity & flexibility plays the most important role for the preference
of mutual fund over ulips.
Low risk is taken in case of ulips & moderate risk in case of mutual funds. The expected
annual return is high for mutual fund comparative to ulips. The preferred tenure of
investment is same for both ulips & mutual fund.
The recent controversy related to ulips will going to affect its future demand &in future
also more number of investors will like to invest their money in mutual fund. So future is
bright for mutual funds.
CONCLUSION
120
A mutual fund is the ideal investment vehicle for today’s complex and modern financial scenario. Markets for equity shares, bonds and other fixes income instruments, real estate, derivatives and other assets have become mature and information driven. Today each and every person is fully aware of every kind of investment proposal Everybody wants to invest money, which entitled of low risk, high returns and easy redemption. In my opinion before investing in mutual funds, one should be fully aware of each and everything.
At the same time Ulips as an investment avenue is good for people who has interest in
staying for a longer period of time, that is around 10 years and above. Also in the coming times,
Ulips will grow faster. Ulips are actually being publicized more and also the other traditional
endowment policies are becoming unattractive because of lower interest rate. It is good
for people who were investing in ULIP policies of insurance companies as their investments
earn them a better return than the other policies.
RECOMMENDATIONS
The performance of the mutual fund depends on the previous year’s Net Asset Value of the fund. 121
All schemes are doing well. But the future is uncertain. So, the AMC (Asset under Management
Companies) should take the following steps: -
1. The people do not want to take risk. The AMC should launch more diversified funds so
that the risk becomes minimize. This will lure more and more people to invest in mutual
funds and ulips.
2. The expectation of the people from the mutual funds is high. So, the portfolio of the fund
should be prepared taking into consideration the expectations of the people.
3. Try to reduce fund charges, administration charges and other charges which help to invest
more funds in the security market and earn good returns.
4. Different campaigns should be launched to educate people especially regarding SIP.
5. Companies should give regular dividends as it depicts profitability.
6. Companies should give handsome brokerage to brokers so that they get attracted towards
distribution of the funds.
7. ULIPs is good for those who prefer investment plus insurance.
Limitations of the Study
122
The study based on survey through pre-designed questionnaires suffers from the basic
limitations of the possibility of difference between what is recorded and what is the truth, no
matter how carefully the questionnaire has been designed and field investigation has been
conducted. This is because the persons may not deliberately report their true responses and
even if they want to do so, they are bound to be differences owing to problems in the
communication process. In addition, there are some limitations, which are as below:
Data collection error may be there due to wrong response from respondents as some time
they are not the right person who takes actual decisions.
Some of the respondents can hide the real information.
Some time people did not have time to fulfill questionnaire, so they give only few
information.
A sample size cannot always represent the whole population
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123
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Aggarwal Ashish(2010) “Back to the real issue: mis-selling” Business standard
Shankaran Sanjiv & Mathew Liz(2010) “Finance ministry to call the shots on turf wars”
Times of India
Rosita “IRDA regulates ULIPS a relief for investors” 2009 Economic Times
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www.amfiindia.com
www.hsbcinvestdirect.com
www.sebi.com
www.economictimes.com
www.investorsguide.com
http://www.banknetindia.com/banking/0723.htm
http://www.indiaprwire.com/pdf/pressrelease/200805079347
http://www.ibeforg/industry/insurance_industry.aspx
http://www.banknetindia.com/bankinb/61012.htm
http://www.insurancemail.in/i_opener/post/2008/03/charges-in-ulips.aspx
http://www.irda.gov.in
125
ANNEXURE
QUESTIONNAIRE
Name Contact No Occupation
126
1. In which of following plan you have invested?
a)ULIPS
b)Mutual Fund
c) Both
2. Income Group
a) Below- 2 lac b) Rs 2 lac- 4 lac
c) Rs 4 lac- 6 lac d) Above 6 lac
3. What factors do you consider before investing in ULIPS and Mutual fund?
a) Safety of Principal b) High return
c) Maturity period d)Terms and Condition
4. Which of the following source helps you in making your investment decision?
a) Journals b) Reference Group
c) Television d) Brokers
e) Newspaper
5. In which type of fund you would like to invest in? (You can select more than one option)
a) Equity based Fund b) Debt based Fund
c) Balanced Fund d) Open ended Fund
e) Closed ended Fund
6. What are the reasons that will initiate you to invest in ulips?
a) Tax rebate
Strongly Disagree Disagree Neutral Agree Highly Agree
b) Life Insurance
127
Strongly Disagree Disagree Neutral Agree Highly Agree
c) Capital Growth Rate
Strongly Disagree Disagree Neutral Agree Highly Agree
d) Investment of Excess Money
Strongly Disagree Disagree Neutral Agree Highly Agree
7. What are the reasons that will initiate you to invest in mutual fund?a) Tax Rebate
Strongly Disagree Disagree Neutral Agree Highly Agree
b)Capital Growth
Strongly Disagree Disagree Neutral Agree Highly Agree
c)Investment of excess
Strongly Disagree Disagree Neutral Agree Highly Agree
8. On the basis of following factors tick your preference between ULIPS and Mutual fund? ULIPS Mutual fund
a) Diversification128
b) Professional Managementc) Low costd) Liquiditye) Flexibility
9. What is your risk taking capability?
a) High
b) Moderate
c). Low
10. What is the expected annual return according to you?
a) Less than 10% b) 11-15%
c)15-20% d)Above 20%
11. What is your preferred tenure of investment?
a) Short term b) Mid termc) Long term
12.Are you aware of the controversy regarding ULIPS?
a) Yes b) No
If Yes then will it affect your investment decision?
13. Where would you like to invest your money in future?
a) ULIPS b) Mutual Fund
Why?
129
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