Comparative Analysis of Unit Linked Insurance Plans and Mutual Funds [Max_ Newyork] (2)

A

SUMMER TRAINING PROJECTON

COMPARATIVE ANALYSIS OF UNIT LINKED INSURANCE PLANS AND

MUTUAL FUNDS

Submitted towards partial fulfillment of the requirement for the award of degree of

MASTER OF BUSINESS ADMINISTRATION(2006-2008)

INDUSTRY GUIDE

SUBMITTED TO: SUBMITTED BY:PROF. S.K. GROVER AMBIKA JAINFACULTY ROLL # 9190509

INSTITUTE OF MANAGEMENT STUDIESNOIDA

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ACKNOWLEDGEMENT

I exp re s s my s i nce re g r a t i t ude t o my i ndus t ry gu ide Mr. Anupam

Nagar , Sa l e s Manage r , MAX NEW YORK LIFE , fo r a c t i ng a s a

men to r and a s a c a t a ly s t du r ing en t i r e du ra t i on o f my p ro j ec t . I

a l so t hank h im fo r p rov id ing con t i nuous coope ra t i on suppo r t and

expe r t gu idance t h roughou t my p ro j ec t , wheneve r needed .

I wou ld a l so l i ke t o t hank t he en t i r e t e am o f Max New York L i f e ,

f o r t he cons t an t suppo r t and he lp i n t he succe s s fu l comple t i on o f

my p ro j ec t .

A l so , I am thank fu l t o my f acu l t y gu ide Mr . J .L .G i r i , Facu l t y

Gu ide o f my i n s t i t u t e , f o r h i s con t i nued gu idance and i nva luab l e

encou ragemen t .

AMIT NAGAR

CONTENTS –

Chapter 1 Objective and Scope of the study

Chapter 3 Corporate profile

Chapter 4 Critical Review of Literature

Chapter 5 Research Design & Sampling Methodology

Chapter 6 Findings and Analysis

Chapter 7 Conclusions

Chapter 8 Recommendations

Chapter 9 Limitations of the Project

Chapter 10 Executive Summary

Chapter 11 References

Chapter 12 Annexure

Questionnaire

Objective & SCOPE of Study

OBJECTIVE

To d raw a compa ra t i ve ana ly s i s o f u l i p s and mu tua l f unds and t o

exp lo re va r i ous popu l a r i nves tmen t avenues fo r t he i nves to r s ha s

been t he p r ime ob j ec t i ve o f t h i s s t udy .

( i ) To Tes t t he awa renes s l eve l i n t he ma rke t f o r Un i t

L inked In su rance P l ans (ULIPs ) and Mutua l Fund .

( i i ) To f i nd t he mos t popu l a r i nves tmen t avenues among

samp le o f i nves to r s .

( i i i ) To f i nd t he impor t ance o f va r i ous i nves tmen t s ba sed

pa rame te r s among samp le o f i nves to r s .

( i v ) To i den t i fy t he po t en t i a l cu s tomer s a c ro s s l oca t i ons , age -

g roups , p ro f e s s ion .

(v ) To ge t an i dea o f cus tomer expec t a t i ons i n t e rms o f r a t e

o f r e t u rn .

Scope

The su rvey fo r t he p ro j ec t was conduc t ed i n De lh i NCR a rea . The

focus was on age g roup f a l l i ng unde r t he work ing c l a s s .

Corporate Profile

COMPANY PROFILE

Max New York L i f e In su rance Company L td . i s a j o in t ven tu re

be tween New York L i f e , a Fo r tune 100 company and Max Ind i a

L imi t ed , one o f I nd i a ' s l e ad ing mu l t i - bus ine s s co rpo ra t i ons . The

company ha s pos i t i oned i t s e l f on t he qua l i t y p l a t fo rm . In l i ne

w i th i t s v i s i on t o be t he mos t admi red l i f e i n su rance company i n

Ind i a , i t h a s deve loped a s t r ong co rpo ra t e gove rnance mode l

ba sed on t he co re va lue s o f exce l l ence , hones ty , knowledge ,

c a r i ng , i n t eg r i t y and t e amwork . The s t r a t egy i s t o e s t ab l i sh i t s e l f

a s a t r u s t ed l i f e i n su rance spec i a l i s t t h rough a qua l i t y app roach t o

bus ine s s .

Inco rpo ra t ed i n 2000 , Max New York L i f e s t a r t ed commerc i a l

ope ra t i on i n 2001 . I n l i ne w i th i t s va lue s o f f i nanc i a l

r e spons ib i l i t y , Max New York L i f e ha s adop t ed p ruden t f i nanc i a l

p r ac t i c e s t o ensu re s a f e ty o f po l i cyho lde r ' s f unds . The Company ' s

pa id up i s Rs . 1032 c ro re .

Hav ing s e t a be s t i n c l a s s agency d i s t r i bu t i on mode l i n p l ace , t he

company i s spea rhead ing a ma jo r t h ru s t i n to add i t i ona l

d i s t r i bu t i on channe l s t o fu r t he r g row i t s bus ine s s . The company

ha s mu l t i - channe l d i s t r i bu t i on t ha t i nc ludes t he agency

d i s t r i bu t i on , pa r t ne r sh ip d i s t r i bu t i on , bancas su rance , d i s t r i bu t i on

focused on emerg ing marke t s and a l l i ance marke t i ng t h rough

emp loyed s a l e s fo r ce . The company cu r r en t l y ha s 33

bancas su rance r e l a t i onsh ip s , 14 co rpo ra t e agency t i e -ups and

d i r ec t s a l e s f o r ce a t 14 l oca t i ons . Max New York L i f e ha s pu t i n

p l ace a un ique hub and spoke mode l o f d i s t r i bu t i on t o deepen

ru r a l pene t r a t i on . The company ha s 39 (9 hub o f f i c e 30 spoke

o f f i c e s ) o f f i c e s ded i ca t ed t o emerg ing marke t s i n Pun j ab and

Ha ryana . Max New York L i f e o f f e r s a su i t e o f f l ex ib l e p roduc t s .

I t now has 38 p roduc t s cove r ing bo th l i f e and hea l t h i n su rance

and 8 r i de r s t ha t c an be cus tomized t o ove r 800 combina t i ons

enab l i ng cus tomer s t o choose t he po l i cy t ha t be s t f i t s t he i r need .

Bes ide s t h i s , t he company o f f e r s 6 p roduc t s and 4 r i de r s i n g roup

i n su rance bus ine s s .

The company cu r r en t l y ha s more t han 7500 emp loyees .

Vis ion :

To become the mos t admi red l i f e i n su rance company i n Ind i a .

Miss ion :

Become one o f t he t op l i f e i n su rance compan i e s i n Ind i a

Be a na t i ona l p l aye r

Be t he b r and o f f i r s t cho i ce

Be t he emp loye r o f cho i ce

Become p r inc ipa l o f cho i ce fo r agen t s

SWOT ANALYSIS:

Strength :

1) Won Indo -Amer i can Corpo ra t e Exce l l ence Award fo r be s t

I ndo Us company i n F inanc i a l Se rv i ce s Ca t ego ry i n 2006 .

2 ) Rece ived ‘Bes t S ix S igma P ro j ec t ’ awa rd a t Saka l S ix S igma

Exce l l ence awards -2006

3) Among t op 3 i n As i a L i f e In su rance Company o f t he Yea r

Award 2007 i n s t i t u t ed by As i a In su rance Rev i ew .

4) F i r s t L i f e In su rance Company i n Ind i a t o be awa rded ISO

9001 :2000 ce r t i f i c a t i on .

Weakness :

1) A huge e f fo r t needs t o be made t o sp r ead awarenes s

r ega rd ing ULIPS a s peop l e a r e o f t en wa ry o f i t s i nce t hey

do no t know the po t en t i a l and r e l i ab i l i t y o f ULIPS a s an

i nves tmen t avenue .

2 ) The r i sk a s soc i a t ed i s l a rge s i nce t he r e t u rn s a r e ba sed on

t he pe r fo rmance o f t he s t ock marke t s .

Oppor tun i t i e s :

1) The re i s a huge marke t t ha t r ema ins s t i l l uncap tu red and

un rea l i z ed . Hence t he s cope o f expans ion i s immense .

2 ) Ind i a i s a young coun t ry w i th a ma jo r i t y o f i t s popu l a t i on

f a l l i ng unde r t he work ing c l a s s c a t ego ry .Subsequen t l y i t

t r an s l a t e s i n to t he f a c t t ha t t he cus tomer ba se i s l a rge fo r

t h i s p roduc t . S ince Ind i a i s l a rge ly an unde r - i n su red

coun t ry .

3 ) Wi th t he e conomy on a boom and a bu l l i sh t r end p r eva i l i ng

i n t he ma rke t s , t he r e t u rn s have l a rge ly been good ,

encou rag ing and a t t r a c t i ng more and more peop l e t owards i t .

Threa t s :

1 ) Compe t i t o r s l i ke IC ICI P ruden t i a l and Ba j a j A l l i anz g ive a b ig

compe t i t i on t o Max New York L i f e . Peop l e p r e f e r L IC fo r

I n su rance and FDs fo r i nves tmen t s ove r ULIPs s i nce t hey a r e

conven t i ona l l y cons ide red s a f e r .

INDUSTRY PROFILE:

Al l l i f e i n su rance compan i e s i n Ind i a have t o comply w i th t he

s t r i c t r egu l a t i ons l a i d ou t by In su rance Regu l a to ry and

Deve lopmen t Au tho r i t y o f I nd i a ( IRDA) . The re fo re t he r e i s no

r i sk i n go ing i n fo r p r i va t e i n su rance p l aye r s . I n t e rms o f be ing

r a t ed fo r f i nanc i a l s t r eng th l i ke i n t e rna t i ona l p l aye r s , on ly ICICI

P ruden t i a l i s r a t ed by F i t ch Ind i a a t Na t i ona l I n su re r F inanc i a l

S t r eng th Ra t i ng o f AAA(Ind ) w i th s t ab l e ou t l ook i nd i ca t i ng t he

h ighes t c l a ims pay ing ab i l i t y r a t i ng .

L i f e In su rance Corpo ra t i on o f I nd i a (L IC) , t he s t a t e owned

behemoth , r ema ins by f a r t he l a rge s t p l aye r i n t he ma rke t . Among

t he p r i va t e s ec to r p l aye r s , IC ICI P ruden t i a l L i f e In su rance ( JV

be tween ICICI Bank and P ruden t i a l PLC) i s t he l a rge s t f o l l owed

by Ba j a j A l l i anz L i f e In su rance Company L imi t ed ( JV be tween

Ba j a j Group and A l l i anz ) . The p r i va t e compan i e s a r e coming ou t

w i th be t t e r p roduc t s wh ich a r e more bene f i c i a l t o t he cus tomer .

Among such p roduc t s a r e t he ULIPs o r t he Un i t L inked

Inves tmen t P l ans wh ich o f f e r bo th l i f e cove r a s we l l a s s cope fo r

s av ings o r i nves tmen t op t i ons a s t he cus tomer de s i r e s .Fu r the r ,

t he se t ype o f p l ans a r e sub j ec t t o a m in imum lock - in pe r i od o f

t h r ee yea r s t o p r even t m i suse o f t he s i gn i f i c an t t ax bene f i t s

o f f e r ed t o such p l ans unde r t he Income Tax Ac t . Hence ,

compa r i son o f such p roduc t s w i th mu tua l f unds wou ld be

e r roneous .

The re ex i s t s huge s cope o f i nves tmen t i n t he i n su rance s ec to r i n

Ind i a . I nd i a ha s an eno rmous midd l e - c l a s s t ha t c an a f fo rd t o buy

l i f e , hea l t h and d i s ab i l i t y and pens ion p l an p roduc t s . Fu r the r ,

i n su rance i s one o f t he mos t impor t an t t ax s av ing i n s t rumen t i n

t he coun t ry .

In su rance s ec to r ha s been opened up fo r compe t i t i on f rom Ind i an

p r i va t e i n su rance compan i e s w i th t he enac tmen t o f I n su rance

Regu l a to ry and Deve lopmen t Au tho r i t y Ac t , 1999 ( IRDA Ac t ) . As

pe r t he p rov i s i ons o f IRDA Ac t , 1999 , I n su rance Regu l a to ry and

Deve lopmen t Au tho r i t y ( IRDA) was e s t ab l i shed on 19 th Apr i l

2000 t o p ro t ec t t he i n t e r e s t s o f ho lde r o f i n su rance po l i cy and t o

r egu l a t e , p romote and ensu re o rde r l y g rowth o f t he i n su rance

i ndus t ry . IRDA Ac t 1999 paved t he way fo r t he en t ry o f p r i va t e

p l aye r s i n to t he i n su rance marke t , wh i ch was h i t he r t o t he

exc lu s ive p r i v i l ege o f pub l i c s ec to r i n su rance compan i e s /

co rpo ra t i ons . Unde r t he new d i spensa t i on Ind i an i n su rance

compan i e s i n p r i va t e s ec to r we re pe rmi t t ed t o ope ra t e i n Ind i a on

t he fu l f i l lmen t o f c e r t a i n p r e r equ i s i t e s . A l a rge number o f pub l i c

and p r i va t e p l aye r s a r e compe t i ng t oday i n bo th l i f e and gene ra l

i n su rance s egmen t s . The FDI cap / Equ i t y i n t he i n su rance s ec to r

i s 26 pe r cen t unde r t he au toma t i c rou t e sub j ec t t o l i c ens ing by t he

i n su rance r egu l a to ry and deve lopmen t au tho r i t y .

Some o f t he ma jo r p r i va t e p l aye r s i n t he s ec to r a r e :

In L i f e i n su rance Sec to r :

Ba ja j A l l i anz L i f e In su rance Corpo ra t i on

Bi r l a Sun L i f e In su rance Co . L td . (BSLI )

HDFC S t anda rd L i f e In su rance Co . L td . (HDFC STD LIFE)

IC ICI P ruden t i a l L i f e In su rance Co . L td . ( IC ICI PRU)

ING Vysya L i f e In su rance Co . Pv t . L td . ( ING VYSYA)

Max New York L i f e In su rance Co . L td . (MNYL)

MetL i f e Ind i a In su rance Co . Pv t . L td . (METLIFE)

Kotak Mah ind ra O ld Mutua l L i f e In su rance Co . L td . SBI

L i f e In su rance Co . L td . (SBI L IFE)

TATA AIG L i f e In su rance Co . L td . (TATA AIG)

AMP Sanmar Assu rance Co . L td . (AMP SANMAR)

Aviva L i f e In su rance Co . Pv t . L td . (AVIVA)

Saha ra Ind i a L i f e In su rance Co . L td . (SAHARA LIFE)

Shr i r am L i f e In su rance Co . L td

In Gene ra l I n su rance s ec to r :

Ba ja j A l l i anz Gene ra l I n su rance Co . L td . (BAJAJ

ALLIANZ)

IC ICI Lombard Gene ra l I n su rance Co . L td . ( IC ICI

LOMBARD)

IFFCO Tokyo Gene ra l I n su rance Co . L td . ( IFFCO TOKIO)

Re l i ance Gene ra l I n su rance Co . L td . (RELIANCE)

Roya l Sunda ram Al l i ance In su rance Co . L td .

TATA AIG Gene ra l I n su rance Co . L td . (TATA AIG)

Cho lamanda l am MS Gene ra l I n su rance Co . L td .

HDFC Chubb Gene ra l I n su rance Co . L td . (HDFC CHUBB)

In t e rms o f po l i c i e s t he i ndus t ry ha s w i tne s sed 30% g rowth du r ing

FY07 when compa red w i th FY06 . L IC ha s r eg i s t e r ed 21% g rowth

du r ing t he s ame pe r i od .

Among p r i va t e p l aye r s Ba j a j A l l i anz ha s so ld t he h ighes t numbe r

o f po l i c i e s f o l l owed by ICICI P ruden t i a l , SBI L i f e & Max New

York .

Indus try Tota l 46151566 35462117

CRITICAL REVIEW

OF LITERATURE

ULIPs vs. MUTUAL FUNDS

Unit Linked Insurance Plans (ULIPs)

For t he gene ra t i on o f i n su rance s eeke r s who t h r i ved on i n su rance

po l i c i e s w i th a s su red r e tu rn s i s sued by a s i ng l e pub l i c s ec to r

en t e rp r i s e , un i t - l i nked i n su rance p l ans a r e a r eve l a t i on .

The subsequen t so f t en ing o f i n t e r e s t r a t e s i n t roduced a deg ree a

much -needed r a t i ona l i t y t o i n su rance p roduc t s l i ke endowmen t

p l ans ; a t t r a c t i ve r e t u rn s a t l ow r i sk became a t h ing o f t he pa s t .

The s ame pe r i od a l so co inc ided w i th an up tu rn i n equ i t y ma rke t s

and t he emergence o f a new b reed o f ma rke t - l i nked i n su rance

p roduc t s l i ke ULIPs . Whi l e i n conven t i ona l i n su rance p roduc t s

t he i n su rance componen t t ake s p r ecedence ove r t he s av ings

componen t , t he oppos i t e ho ld s t r ue fo r ULIPs .

More impor t an t l y ULIPs (powered by t he p r e sence o f a l a rge

number o f va r i an t s ) o f f e r i nves to r s t he oppo r tun i t y t o s e l ec t a

p roduc t wh ich ma tches t he i r r i sk p ro f i l e ; f o r example an

i nd iv idua l w i th a h igh r i sk appe t i t e c an shun t r ad i t i ona l

endowmen t p l ans (wh ich i nves t abou t 85% o f t he i r f unds i n t he

deb t i n s t rumen t s ) i n f avou r o f a ULIP wh ich i nves t s mos t o f i t s

co rpus i n equ i t i e s .

In t r ad i t i ona l i n su rance p roduc t s , t he sum a s su red i s t he co rne r

s t one ; i n ULIPs p r emium paymen t s i s t he key componen t . ULIPs

a r e r emarkab ly a l i ke t o mu tua l f unds i n t e rms o f t he i r s t r uc tu r e

and func t i on ing ; p r emium paymen t s made a r e conve r t ed i n to un i t s

and a ne t a s se t va lue (NAV) i s dec l a r ed fo r t he s ame .

Inves to r s have t he cho i ce o f enhanc ing t he i r i n su rance cove r ,

mod i fy ing p r emium paymen t s and even op t i ng fo r a d i s t i nc t a s se t

a l l oca t i on t han t he one t hey o r i g ina l l y op t ed fo r . Th i s c a l l s f o r

enhanced f l ex ib i l i t y i n ULIPs . A l so i f an un fo re seen even tua l i t y

we re t o occu r , i n c a se o f t r ad i t i ona l p roduc t s , t he sum a s su red i s

pa id a long w i th a ccumula t ed bonuse s ; conve r se ly i n ULIPs , t he

i n su red i s pa id e i t he r t he sum a s su red o r co rpus amoun t

wh icheve r i s h ighe r .

In su rance s eeke r s have neve r been exposed t o t h i s k ind o f

f l ex ib i l i t y i n t r ad i t i ona l i n su rance p roduc t s and i t wou ld be f a i r

t o s ay t ha t ULIPs r ep re sen t t he new f ace o f i n su rance . Whi l e f ew

wou ld d i spu t e t he va lue -add t ha t ULIPs can p rov ide t o one ' s

i n su rance po r t fo l i o and f i nanc i a l p l ann ing ; t he s ame i s no t

w i thou t i t s f l i p s ide .

Fo r t he un in i t i a t ed , unde r s t and ing t he func t i on ing o f ULIPs can

be qu i t e a hand fu l ! The p r e sence o f wha t s eem to be r e l a t i ve ly

h ighe r expense s , r i g id ly de f i ned i n su rance and i nves tmen t

componen t s and t he impac t o f ma rke t s on t he co rpus c l e a r l y make

ULIPs a complex p ropos i t i on . T rad i t i ona l l y t he i n su rance s eeke r ' s

r o l e was a pa s s ive one r e s t r i c t ed t o mak ing p r emium paymen t s ;

ULIPs r equ i r e g r ea t e r pa r t i c i pa t i on f rom the i n su red .

Charges and Expenses

ULIPs work ve ry s im i l a r t o a mu tua l f und w i t h an added bene f i t

o f l i f e cove r and t ax deduc t i on . They have a manda t e t o i nves t t he

p r emiums i n va ry ing p ropo r t i ons i n g sec s (gove rnmen t s ecu r i t i e s ) ,

http://www.personalfn.com/investment/ms/targetbook.asp?title=The%20definitive%20guide%20to%20Mutual%20Funds&filename=MSMAY2005.html&bookId=15

bonds , t he money marke t s ( c a l l money ) and equ i t i e s . The p r ima ry

d i f f e r ence be tween conven t i ona l s av ings -ba sed i n su rance p l ans

l i ke endowmen t and ULIPs i s t he i nves tmen t manda t e - wh i l e

ULIPs can i nves t up t o 100% o f t he p r emium in equ i t i e s , t he

pe r cen t age i s much l ower (u sua l l y no t more t han 15%) i n c a se o f

conven t i ona l i n su rance p l ans . ULIPs a r e a l so ava i l ab l e i n

mu l t i p l e op t i ons l i ke ‘ agg re s s ive ’ ULIPs (wh ich can i nves t up to

100% in equ i t i e s ) , ‘ ba l anced ’ ULIPs (wh ich i nves t 40 -60% in

equ i t i e s ) and ‘deb t ’ ULIPs (wh ich i nves t on ly i n deb t and money

marke t i n s t rumen t s ) .

B road ly speak ing , ULIP expense s a r e c l a s s i f i ed i n to t h r ee ma jo r

c a t ego r i e s :

1) Morta l i ty charges

Mor ta l i t y expense s a r e cha rged by l i f e i n su rance compan i e s fo r

p rov id ing a l i f e cove r t o t he i nd iv idua l . The expense s va ry w i th

t he age , sum a s su red and sum-a t - r i sk fo r t he i nd iv idua l . The re i s

a d i r e c t r e l a t i on be tween t he mor t a l i t y expense s and t he above

men t ioned f ac to r s . I n a ULIP , t he sum-a t - r i sk i s an impor t an t

r e f e r ence po in t f o r t he i n su rance company . The sum-a t - r i sk i s t he

d i f f e r ence be tween t he sum a s su red and t he i nves tmen t va lue t he

i nd iv idua l ’ s co rpus a s on a spec i f i ed da t e . Usua l l y , t he mor t a l i t y

cha rge s a r e l ev i ed on t he pe r t housand sum a s su red .

2) Sa l e s and Fund Admin i s t ra t ion expenses

In su rance compan i e s i ncu r t he se expense s fo r ope ra t i ona l

pu rpose s on a r egu l a r ba s i s . The expense s a r e r e cove red f rom the

p r emiums t ha t i nd iv idua l s pay t owards t he i r i n su rance po l i c i e s .

Agen t commis s ions , s a l e s and marke t i ng expense s and t he

ove rhead cos t s i ncu r r ed t o run t he i n su rance bus ine s s on a day - to -

day ba s i s a r e example s o f such expense s .

3) Fund management charges (FMC)

These cha rge s a r e l ev i ed by t he i n su rance company t o mee t t he

expense s i ncu r r ed on manag ing t he ULIP i nves tmen t s . A po r t i on

o f ULIP p remiums a r e i nves t ed i n equ i t i e s , bonds , g - s ec s and

money marke t i n s t rumen t s . Manag ing t he se i nves tmen t s i ncu r s a

f und managemen t cha rge , s im i l a r t o wha t mu tua l f unds i ncu r on

t he i r i nves tmen t s . FMCs d i f f e r a c ro s s i nves tmen t op t i ons l i ke

agg re s s ive , ba l anced and deb t ULIPs ; u sua l l y a h ighe r equ i t y

op t i on t r ans l a t e s i n to h ighe r FMC.

Apa r t f r om the t h r ee expense ca t ego r i e s men t i oned above ,

i nd iv idua l s may a l so have t o i ncu r c e r t a i n expense s , wh i ch a r e

p r ima r i l y ‘op t i ona l ’ i n na tu r e - t he expense s w i l l be i ncu r r ed i f

c e r t a i n cho i ce s t ha t a r e made ava i l ab l e t o i nd iv idua l s a r e

exe rc i s ed .

a) Swi t ch ing charges

Ind iv idua l s a r e a l l owed t o sw i t ch t he i r ULIP op t i ons . Fo r

example , an i nd iv idua l c an sw i t ch h i s f und money f rom 100%

equ i t i e s t o a ba l anced po r t fo l i o , wh i ch ha s s ay , 60% equ i t i e s and

40% deb t . Howeve r , t he company may cha rge h im a f e e fo r

‘ sw i t ch ing ’ . Whi l e mos t l i f e i n su rance compan i e s a l l ow a c e r t a i n

number o f f r e e sw i t ches annua l l y , a sw i t ch made ove r and above

t h i s numbe r i s cha rged .

b) Top-up charges

ULIPs a l l ow ind iv idua l s t o i nves t a t op -up amoun t . Top -up

amoun t i s pa id i n add i t i on t o t he p r emium amoun t fo r a pa r t i cu l a r

yea r . I n su rance compan i e s u sua l l y deduc t a c e r t a i n pe r cen t age

f rom the t op -up amoun t a s cha rge s . These cha rge s a r e u sua l l y

l ower t han t he r egu l a r cha rge s t ha t a r e deduc t ed f rom the annua l

p r emium.

c ) Cance l l a t i on charges

Li fe i n su rance compan i e s l evy cance l l a t i on cha rge s i f i nd iv idua l s

dec ide t o su r r ende r t he i r po l i c i e s be fo re t he manda t ed l ock - in

pe r i od wh ich i s u sua l l y t h r ee yea r s . These cha rge s a r e l ev i ed a s a

pe r cen t age o f t he fund va lue on a pa r t i cu l a r da t e .

Comparat ive Analys is of ULIPs

Uni t - l i nked i n su rance p l ans have caugh t t he f ancy o f i nves to r s

i n u rban cen t r e . These no t on ly p rov ided l i f e cove r , bu t a l so

b rough t i n a l o t o f t r anspa rency i n t he way t he po l i cyho lde r s '

money i s i nves t ed . The key s t ock marke t i nd i ce s a r e t ouch ing

newer and newer peaks .

The r e tu rn s f rom g rowth funds o f l e ad ing p r i va t e s ec to r p l aye r s ,

IC ICI P ruden t i a l L i f e and Ba j a j A l l i anz , a r e compa rab l e w i th t he

ga in s i n t he NSE Ni f t y i ndex s i nce J anua ry 2005 .

The r e tu rns on ULIPs shou ld no rma l ly be h ighe r t han t he mu tua l

f unds . ULIPs do no t f a ce r edempt ion p r e s su re s a s t he i n su rance

money i s ava i l ab l e fo r i nves tmen t f o r l onge r t e rm and hence

p rov ide s room fo r f und manage r s t o de s ign be t t e r and d i s c ip l i ned

i nves tmen t s t r a t eg i e s .

In con t r a s t , f und manage r s a t mu tua l f unds a r e cons t an t l y unde r

p r e s su re f rom r edempt ions .

Conven t i ona l endowmen t p l ans s eem to have d imin i shed i n

popu l a r i t y ove r t he pa s t f ew yea r s . I n t e r e s t i ng ly , t he i r

d imin i sh ing popu l a r i t y ha s co inc ided w i th a g r ea t e r appe t i t e f o r

un i t l i nked i n su rance p l ans (ULIPs ) .

MUTUAL FUNDS

Mutua l Funds ope ra t e a s co l l e c t i ve i nves tmen t veh i c l e s (C IV) t ha t

poo l s r e sou rce s by i s su ing un i t s t o i nves to r s and co l l e c t i ve ly

i nves t s t hose r e sou rce s i n a d ive r s i f i ed po r t fo l i o compr i s i ng o f

s t ocks , bonds o r money marke t i n s t rumen t s i n a cco rdance w i th t he

ob j ec t i ve s men t i oned i n t he o f f e r documen t i s sued fo r t he pu rpose

o f poo l i ng r e sou rce s . The i nves to r s sha re t he p ro f i t o r l o s se s i n

p ropo r t i on t o t he i r i nves tmen t s i n t he fund . The f i r s t eve r Mutua l

Fund i n Ind i a , t he Un i t t r u s t o f I nd i a was s e t up i n 1964 . Th i s was

fo l l owed by en t ry o f MFs suppo r t ed by pub l i c s ec to r banks and

i n su rance compan i e s i n 1987 . The i ndus t ry was opened fo r t he

p r i va t e p l aye r s i n 1993 p rov id ing Ind i an i nves to r s w i th a b roade r

cho i ce . S t a r t i ng w i th an a s se t ba se o f Rs . 25 c ro r e i n 1964 , t he

i ndus t ry ha s g rown exponen t i a l l y .

The MF indus t ry i n Ind i a i s gove rned by t he SEBI , wh ich l ay

no rms fo r MF and i t s Asse t Manag ing Compan i e s (AMCs) . A

Mutua l Fund i s a l l owed t o i s sue open -ended and c lo sed -ended

s chemes unde r a common l ega l s t r uc tu r e . Respec t i ve Asse t

Managemen t Compan i e s (AMC) manages mu tua l f und s chemes .

D i f f e r en t bus ine s s g roups / f i nanc i a l i n s t i t u t i ons / banks have

sponso red t he se AMCs , e i t he r a l one o r i n co l l abo ra t i on w i th

r epu t ed i n t e rna t i ona l f i rms . Seve ra l i n t e rna t i ona l f unds l i ke

A l l i ance and Temple ton a r e a l so ope ra t i ng i ndependen t l y i n Ind i a .

Many more i n t e rna t i ona l Mu tua l Fund g i an t s a r e expec t ed t o come

i n to Ind i an marke t s i n t he nea r f u tu r e .

Profe s s iona l Management

Mutua l Funds emp loy t he s e rv i ce s o f sk i l l ed p ro fe s s iona l s who

have yea r s o f expe r i ence t o back t hem up . They u se i n t ens ive

r e sea r ch t e chn iques t o ana lyze each i nves tmen t op t i on fo r t he

po t en t i a l o f r e t u rn s a l ong w i th t he i r r i sk l eve l s t o come up w i th

t he f i gu re s fo r pe r fo rmance t ha t de t e rmine t he su i t ab i l i t y o f any

po t en t i a l i nves tmen t .

Potent ia l o f Re turns

Re tu rns i n t he mu tua l f unds a r e gene ra l l y be t t e r t han any o the r

op t i on i n any o the r avenue ove r a r e a sonab l e pe r i od o f t ime .

Peop l e c an p i ck t he i r i nves tmen t ho r i zon and s t ay pu t i n t he

chosen fund fo r t he du ra t i on . Equ i t y funds can ou tpe r fo rm mos t

o the r i nves tmen t s ove r l ong pe r i ods by p l ac ing l ong - t e rm ca l l s on

fundamen ta l l y good s t ocks . The deb t f unds t oo w i l l ou tpe r fo rm

o the r op t i ons such a s banks . Though t hey a r e a f f ec t ed by t he

i n t e r e s t r a t e r i sk i n gene ra l , t he r e t u rn s gene ra t ed a r e more a s

t hey p i ck s ecu r i t i e s w i th d i f f e r en t du ra t i on t ha t have d i f f e r en t

y i e ld s and so a r e ab l e t o i nc r ea se t he ove ra l l r e t u rn s f rom the

po r t fo l i o .

Liqu id i ty

Fixed depos i t s w i th compan i e s o r i n banks a r e u sua l l y no t

w i thd rawn p rema tu re because t he r e i s a pena l c l ause a t t a ched t o

i t . The i nves to r s c an w i thd raw o r r edeem money a t t he Ne t Asse t

Va lue r e l a t ed p r i c e s i n t he open -end s chemes . I n c l o sed -end

s chemes , t he un i t s c an be t r ansac t ed a t t he p r eva i l i ng marke t

p r i c e on a s t ock exchange . Mu tua l f unds a l so p rov ide t he f a c i l i t y

o f d i r e c t r epu rchase a t NAV re l a t ed p r i c e s . The marke t p r i c e s o f

t he se s chemes a r e dependen t on t he NAVs o f f unds and may t r ade

a t more t han NAV (known a s P remium) o r l e s s t han NAV (known

a s D i scoun t ) depend ing on t he expec t ed fu tu r e t r end o f NAV,

wh ich i n t u rn i s l i nked t o gene ra l ma rke t cond i t i ons . Bu l l i sh

ma rke t may r e su l t i n s chemes t r ad ing a t P r emium wh i l e i n bea r i sh

marke t s t he funds u sua l l y t r ade a t D i scoun t . Th i s means t ha t t he

money can be w i thd rawn any t ime , w i thou t much r educ t i on i n

y i e ld . Some mu tua l f unds howeve r , cha rge ex i t l oads fo r

w i thd rawa l w i th in a spec i f i ed pe r i od .

Types o f Mutua l Funds

The re a r e a va r i e t y o f f unds ava i l ab l e a c ro s s c a t ego r i e s . The re a r e

funds wh ich i nves t i n g rowth s t ocks , f unds wh ich spec i a l i z e s i n

s t ocks o f a pa r t i cu l a r s ec to r , f unds wh ich a s su re r e t u rn s t o t he

i nves to r s , f unds wh ich a s su re r e t u rn s t o i nves to r s , f unds wh ich

i nves t i n deb t i n s t rumen t s , and funds wh ich i nves t agg re s s ive ly i n

t he s t ocks . Thus , we have i ncome funds , ba l anced funds , l i qu id

funds , g i l t f unds , i ndex funds , Exchange T raded Funds , s ec to r a l

f unds , and t hen t he r e a r e open -ended and c lo sed -ended funds and

a s su red r e tu rn funds - - - - - t he r e i s a f und fo r eve ry r equ i r emen t .

MFs can be c l a s s i f i ed acco rd ing t o t he i r ma tu r i t y pe r i od . A c lo sed

– ended fund ha s a s t i pu l a t ed ma tu r i t y , t he i nves to r s have t o wa i t

un t i l ma tu r i t y fo r r edempt ion . A open -ended fund g ive s i nves to r s

an op t i on t o r edeem and buy un i t s a t any t ime f rom the fund .

These s chemes do no t have a f i xed ma tu r i t y and can be t r aded

conven i en t l y a t NAV p r i ce s dec l a r ed on a da i l y ba s i s .

Value Advantage

Ef fec t i ve Regu la t ion

Unl ike t he company f i xed depos i t s , whe re t he r e i s l i t t l e con t ro l

w i th t he i nves tmen t be ing cons ide red a s unsecu red deb t f rom the

l ega l po in t o f v i ew , t he Mutua l Fund i ndus t ry i s ve ry we l l

r egu l a t ed . A l l i nves tmen t s have t o be accoun t ed fo r , dec i s i ons

j ud i c ious ly t aken . SEBI ac t s a s a t r ue wa t chdog i n t h i s c a se and

can impose pena l t i e s on t he AMCs a t f au l t . The r egu l a t i ons ,

de s igned t o p ro t ec t t he i nves to r s ’ i n t e r e s t s a r e a l so imp lemen ted

e f f ec t i ve ly .

Transparency

Be ing unde r a r egu l a to ry f r amework , mu tua l f unds have t o

d i s c lo se t he i r ho ld ings , i nves tmen t pa t t e rn and a l l t he i n fo rma t ion

t ha t c an be cons ide red a s ma t e r i a l , be fo re a l l i nve s to r s . Th i s

means t ha t t he i nves tmen t s t r a t egy , ou t l ooks o f t he ma rke t and

s cheme r e l a t ed de t a i l s a r e d i s c lo sed w i th r e a sonab l e f r equency t o

ensu re t ha t t r anspa rency ex i s t s i n t he sy s t em. Th i s i s un l i ke any

o the r i nves tmen t op t i on i n Ind i a whe re t he i nves to r knows

no th ing a s no th ing i s d i s c lo sed .

Flex ib l e and Af fordab le

Mutua l Funds o f f e r a r e l a t i ve ly l e s s expens ive way t o i nves t when

compa red t o o the r avenues such a s c ap i t a l ma rke t ope ra t i ons . The

f ee i n t e rms o f b roke rages , cu s tod i a l f e e s and o the r managemen t

f e e s a r e subs t an t i a l l y l ower t han o the r op t i ons and a r e d i r ec t l y

l i nked t o t he pe r fo rmance o f t he s cheme . I nves tmen t i n mu tua l

f unds a l so o f f e r s a l o t o f f l ex ib i l i t y w i th f e a tu r e s such a s r egu l a r

i nves tmen t p l ans , r egu l a r w i thd rawa l p l ans and d iv idend

r e inves tmen t p l ans enab l i ng sy s t ema t i c i nves tmen t o r w i thd rawa l

o f f unds . Even t he i nves to r s , who cou ld o the rwi se no t en t e r s t ock

marke t s w i th l ow inves t i b l e funds , c an bene f i t f r om a po r t fo l i o

compr i s i ng o f h igh -p r i c ed s t ocks because t hey a r e pu rchased f rom

poo l ed funds .

Sys temat i c Inves tment P lan (SIP)

A Sys t ema t i c I nves tmen t P l an (S IP ) i s an op t i on t ha t a l l ows

i nves to r t o i nves t a f i xed sum o f money a t pe r i od i c i n t e rva l s on

spec i f i c da t e s .

I t he lp s t o s ave r egu l a r l y and t hus i ncu l ca t e s a s ense o f

d i s c ip l i ne

I t ha rne s se s t he power o f compound ing

I t i s t he be s t pos s ib l e way i nves to r s c an r e ign i n impu l s ive

buys -and - se l l s t ha t o the rwi se he i s g r i pped by i n t imes o f

ma rke t vo l a t i l i t y - Rupee cos t ave rag ing

Treatment o f Ba lanced Funds for Tax Purposes -

Budge t 2006 a l t e r ed t he t ax t r e a tmen t o f mu tua l f unds i n a

manne r t ha t a f f ec t s ba l anced funds .

Unde r t he new no rms , a t l e a s t 65 pe r c en t o f co rpus mus t be

i nves t ed i n equ i t i e s , ( up f rom the ea r l i e r t h r e sho ld o f 50 pe r

c en t ) , t o qua l i f y a s an equ i t y -o r i en t ed fund fo r t ax pu rpose s .

Many funds , wh ich we re r e ce iv ing t he t ax bene f i t s o f equ i t y - fund

t r e a tmen t , w i l l have t o r a i s e t he i r equ i t y exposu re t o keep t hose

t ax bene f i t s .

Impl i ca t ions

The change r emoves an anoma ly . Ea r l i e r , t he Income Tax Ac t ' s

de f i n i t i on o f an equ i t y -o r i en t ed fund r an coun t e r t o SEBIs

de f i n i t i on unde r wh ich an equ i t y fund r equ i r ed a m in imum 65 pe r

c en t equ i t y exposu re . The IT Ac t kep t t h i s t h r e sho ld a t 50 pe r

c en t .

Budge t 2006 ha s r e t a i ned SEBIs de f i n i t i on . And f rom 1 June

2006 , on ly t hose funds w i th 65 pe r c en t o r more i n equ i t i e s a r e

exempt f rom d iv idend d i s t r i bu t i on t ax (14 .03 pe r c en t i nc lud ing

su rcha rges ) and un i t -ho lde r s a r e exempt f rom pay ing l ong - t e rm

cap i t a l ga in s t ax .

Th i s move p l ace s funds t ha t i nves t 50 -65 pe r c en t i n equ i t i e s i n

l imbo . Ea r l i e r , t he se funds en joyed t ax r e l i e f . Now they w i l l have

t o push equ i t y exposu re above 65 pe r c en t t o c l a im bene f i t s .

Ba l anced funds have two cho i ce s :

Stay above 65 pe r c en t i n equ i t i e s t o en joy t ax r e l i e f . I n t h i s

c a se , t he r i sk p ro f i l e o f f und r i s e s .

Re ta in t he op t i on t o d rop be low 65 pe r c en t i n a f a l l i ng

marke t and i gno re t he t ax impac t . The t ax ou tgo o f i nves to r s

i nc r ea se s .

MF s tra teg i e s in such a s i tua t ion

We a re i n t he midd l e o f a b ig bu l l r un . Ba l anced funds r e tu rned

33 pe r c en t , 17 pe r c en t and 63 pe r c en t i n 2005 , 2004 and 2003

r e spec t i ve ly , due t o h igh equ i t y a l l oca t i ons and agg re s s ive

managemen t . They have been manag ing deb t pa s s ive ly : buy ing

and ho ld ing t i l l ma tu r i t y w i th l im i t ed t r ad ing .

S ign i f i c an t p ropo r t i ons o f co rpus a r e pa rked i n c a sh and ca l l

s e cu r i t i e s . Some ba l anced funds l i ke BOB Ba l anced Fund have

t he i r en t i r e deb t ho ld ings (28 .98 pe r c en t ) i n c a sh and ca l l

ma rke t s .

As many a s 12 o f 22 ba l anced funds a l r e ady have t he manda t e t o

i nves t ove r 65 pe r c en t i n equ i t i e s , a s spec i f i ed i n t he i r o f f e r

documen t s Bu t t hey a l so have t he manda t e t o go down to 50 pe r

c en t . Expec t some o f t he se funds t o s t ay above 65 pe r c en t unde r

a l l cond i t i ons . Some wi l l need t o change t he i r manda t e t o d rop

be low 65 pe r c en t .

Mos t o f t he ba l anced funds a r e expec t ed t o ma in t a in a s t a t u s quo .

Th i s means t ha t t hey w i l l no t he s i t a t e i n cu t t i ng exposu re i f

ma rke t s co r r ec t .

CHARGES-

The Asse t Managemen t Compan i e s (AMCs) manag ing t he Mutua l

Funds l evy a l oad a s a pe r cen t age o f NAV a t t he t ime o f en t ry

i n to t he Schemes o r a t t he t ime o f ex i t i ng f rom the Schemes .

Entry Load - I t i s t he l oad cha rged by t he fund when an i nves to r

i nves t s i n to t he fund . I t i nc r ea se s t he p r i c e o f t he un i t s t o more

t han t he NAV and i s exp re s sed a s a pe r cen t age o f NAV.

Exi t Load - I t i s t he l oad cha rged by t he fund when an i nves to r

r edeems t he un i t s f r om the fund . I t r educes t he p r i c e o f t he un i t s

t o l e s s t han t he NAV and i s exp re s sed a s a pe r cen t age o f NAV.

Cost o f Churn ing /Turnover cos t - I t r e f e r s t o t he cos t s

a s soc i a t ed w i th t he chu rn ing (o r changes made t o t he ho ld ings ) o f

t he po r t fo l i o . Po r t fo l i o changes have a s soc i a t ed cos t s o f

b roke rage , cu s tody f ee s , t r ansac t i on f ee s and r eg i s t r a t i on f ee s ,

wh i ch l ower t he r e t u rn s . The quan tum depends on t he managemen t

s t y l e o f t he fund manage r .

Expense Rat io - The Expense s o f a mu tua l f und i nc lude

managemen t f e e s and a l l t he f e e s a s soc i a t ed w i th t he fund ' s da i l y

ope ra t i ons . Expense Ra t i o r e f e r s t o t he annua l pe r cen t age o f

f und ' s a s se t s t ha t i s pa id ou t i n expense s .

Tax –

Cap i ta l Ga ins Tax - The p ro f i t r e a l i z a t i ons on s a l e o f s ecu r i t i e s

and ce r t a i n o the r c ap i t a l a s s e t s ( i nc lud ing un i t s o f mu tua l f unds )

a r e c a l l ed cap i t a l ga in s . The ga in s c an be c l a s s i f i ed i n to l ong -

t e rm o r sho r t - t e rm depend ing on t he pe r i od o f ho ld ing o f t he a s se t

and a r e cha rged t o t ax a t d i f f e r en t r a t e s . Ga in s on mu tua l f und

un i t s he ld fo r a pe r i od o f 12 mon ths o r more a r e l ong - t e rm ga in s .

These ga in s a r e t axab l e .

D iv idend D i s t r i bu t i on Tax – The Mutua l Fund s chemes

d i s t r i bu t i ng d iv idends on t he i r un i t s t o t he i nves to r s a t t r a c t a

d i s t r i bu t i on t ax a s pe r t ax l aws .

Secu r i t i e s T ransac t i on Tax – AMCs manag ing t he po r t fo l i o have

t o pay STT on t r ansac t i on (buy ing / s e l l i ng ) o f d i f f e r en t s ecu r i t i e s

i n t he s t ock marke t . P r e sen t l y t he t ax r a t e i s 0 . 025%.

Poin ter s to Mutua l Fund Per formance

Mutua l F und i ndus t ry t oday , w i th abou t 34 p l aye r s and more t han

f i ve hund red s chemes , i s one o f t he mos t p r e f e r r ed i nves tmen t

avenues i n Ind i a . Howeve r , w i th a p l e tho ra o f s chemes t o choose

f rom, t he r e t a i l i nve s to r f a ce s p rob l ems i n s e l ec t i ng funds .

Fac to r s such a s i nves tmen t s t r a t egy and managemen t s t y l e a r e

qua l i t a t i ve , bu t t he funds r e co rd i s an impor t an t i nd i ca to r t oo .

Though pa s t pe r fo rmance a lone can no t be i nd i ca t i ve o f f u tu r e

pe r fo rmance , i t i s t he on ly quan t i t a t i ve way t o j udge how good a

fund i s a t p r e sen t . The re fo re , t he r e i s a need t o co r r ec t l y a s se s s

t he pa s t pe r fo rmance o f d i f f e r en t mu tua l f unds . Qu i t e s imp ly t hen

a fund gene ra t i ng more r e tu rn s t han t he o the r i s cons ide red be t t e r

t han t he o the r . Bu t t h i s i s j u s t ha l f t he s t o ry .

Re tu rn a lone shou ld no t be cons ide red a s t he ba s i s o f

measu remen t o f t he pe r fo rmance o f a mu tua l f und s cheme , i t

shou ld a l so i nc lude t he r i sk t aken by t he fund manage r because

d i f f e r en t f unds w i l l have d i f f e r en t l eve l s o f r i sk a t t a ched t o t hem.

The To t a l R i sk o f a g iven fund i s sum o f t he ma rke t r i sk and t he

unsys t ema t i c r i sk and i s measu red i n t e rms o f s t anda rd dev i a t i on

o f r e t u rn s o f t he fund .

The re a r e d i f f e r en t s t a t i s t i c a l pa r ame te r s ava i l ab l e on wh ich a

fund may be ana lyzed . These a r e :

1 . Standard Dev ia t i on

The mos t ba s i c o f a l l measu re s - S t anda rd Dev i a t i on a l l ows

eva lua t i ng t he vo l a t i l i t y o f t he fund . A l t e rna t i ve ly , i t a l l ows

measu r ing t he cons i s t ency o f t he r e t u rn s .

Vo la t i l i t y i s o f t en a d i r ec t i nd i ca to r o f t he r i sk s t aken by t he

fund . The s t anda rd dev i a t i on o f a f und measu re s t h i s r i sk by

measu r ing t he deg ree t o wh ich t he fund f l uc tua t e s i n r e l a t i on t o

i t s mean r e tu rn , t he ave rage r e tu rn o f a f und ove r a pe r i od o f

t ime .

A secu r i t y t ha t i s vo l a t i l e i s a l so cons ide red h ighe r r i sk because

i t s pe r fo rmance may change qu i ck ly i n e i t he r d i r e c t i on a t any

momen t .

A fund t ha t ha s a cons i s t en t f ou r -yea r r e t u rn o f 3%, fo r example ,

wou ld have a mean , o r ave rage , o f 3%. The s t anda rd dev i a t i on fo r

t h i s f und wou ld t hen be ze ro because t he fund ' s r e t u rn i n any

g iven yea r does no t d i f f e r f r om i t s f ou r -yea r mean o f 3%. On t he

o the r hand , a f und t ha t i n e ach o f t he l a s t f ou r yea r s r e t u rned -

5%, 17%, 2% and 30% wi l l have a mean r e tu rn o f 11%. The fund

w i l l a l so exh ib i t a h igh s t anda rd dev i a t i on because each yea r t he

r e t u rn o f t he fund d i f f e r s f rom the mean r e tu rn . Th i s f und i s

t he r e fo re more r i sky because i t f l uc tua t e s w ide ly be tween

nega t i ve and pos i t i ve r e t u rn s w i th in a sho r t pe r i od .

2 . Beta ( ß )

Be ta i s a f a i r l y common ly u sed measu re o f r i sk . I t ba s i ca l l y

i nd i ca t e s t he l eve l o f vo l a t i l i t y a s soc i a t ed w i th t he fund a s

compa red t o t he benchmark .

So qu i t e na tu r a l l y t he succe s s o f Be t a i s heav i l y dependen t on t he

co r r e l a t i on be tween a fund and i t s benchmark . Thus i f t he fund ' s

po r t fo l i o doesn ' t have a r e l evan t benchmark i ndex t hen a be t a

wou ld be g ros s ly i nadequa t e .

A be t a t ha t i s g r ea t e r t han one (ß >1 ) means t ha t t he fund i s more

vo l a t i l e t han t he benchmark , wh i l e a be t a o f l e s s t han one (ß <1 )

means t ha t t he fund i s l e s s vo l a t i l e t han t he i ndex . A fund w i th a

be t a ve ry c lo se t o 1 (ß ~1 ) means t he fund ' s pe r fo rmance c lo se ly

ma t ches t he i ndex o r benchmark .

I f , f o r example , a f und ha s a be t a o f 1 .03 i n r e l a t i on t o t he BSE

Sensex , t he fund ha s been mov ing 3% more t han t he i ndex .

The re fo re , i f t he BSE Sensex i nc r ea sed 10%, t he fund wou ld be

expec t ed t o i nc r ea se 10 .30%.

Inves to r s expec t i ng t he ma rke t t o be bu l l i sh may choose funds

exh ib i t i ng h igh be t a s , wh i ch i nc r ea se i nves to r s ' chances o f

bea t i ng t he ma rke t . I f an i nves to r expec t s t he ma rke t t o be

bea r i sh i n t he nea r f u tu r e , t he funds t ha t have be t a s l e s s t han 1

a r e a good cho i ce because t hey wou ld be expec t ed t o dec l i ne l e s s

i n va lue t han t he i ndex .

3 . R-Squared

The succe s s o f Be t a i s dependen t on t he co r r e l a t i on o f a f und t o

i t s benchmark o r i t s i ndex . Thus wh i l s t cons ide r i ng t he be t a o f

any s ecu r i t y , i nves to r s shou ld a l so cons ide r ano the r s t a t i s t i c - R

squa red t ha t measu re s t he Cor r e l a t i on .

The R- squa red o f a f und adv i s e s i nves to r s i f t he be t a o f a mu tua l

f und i s measu red aga in s t an app rop r i a t e benchmark . Measu r ing

t he co r r e l a t i on o f a f und ' s movemen t s t o t ha t o f an i ndex , R -

squa red de sc r i be s t he l eve l o f a s soc i a t i on be tween t he fund ' s

vo l a t i l i t y and marke t r i sk , o r more spec i f i c a l l y , t he deg ree t o

wh ich a fund ' s vo l a t i l i t y i s a r e su l t o f t he day - to -day f l uc tua t i ons

expe r i enced by t he ove ra l l ma rke t .

R - squa red va lue s r ange be tween 0 and 1 , whe re 0 r ep re sen t s no

co r r e l a t i on and 1 r ep re sen t s f u l l co r r e l a t i on . I f a f und ' s be t a ha s

an R- squa red va lue t ha t i s c l o se t o 1 , t he be t a o f t he fund shou ld

be t r u s t ed . On t he o the r hand , an R- squa red va lue t ha t i s l e s s t han

0 .5 i nd i ca t e s t ha t t he be t a i s no t pa r t i cu l a r l y u se fu l because t he

fund i s be ing compa red aga in s t an i napp rop r i a t e benchmark .

4 . Alpha

A l p h a = ( F u n d r e t u r n - R i s k f r e e r e t u r n ) - F u n d s b e t a * ( B e n c h m a r k

r e t u r n - r i s k f r e e r e t u r n )

Alpha i s t he d i f f e r ence be tween t he r e t u rn s one wou ld expec t

f r om a fund , g iven i t s be t a , and t he r e t u rn i t a c tua l l y p roduces .

An a lpha o f - 1 .0 means t he fund p roduced a r e t u rn 1% h ighe r t han

i t s be t a wou ld p r ed i c t . An a lpha o f 1 .0 means t he fund p roduced a

r e t u rn 1% lower . I f a f und r e tu rns more t han i t s be t a t hen i t ha s a

pos i t i ve a l pha and i f i t r e t u rn s l e s s t hen i t ha s a nega t i ve a lpha .

Once t he be t a o f a f und i s known , a l pha compa re s t he fund ' s

pe r fo rmance t o t ha t o f t he benchmark ' s r i sk - ad ju s t ed r e tu rn s . I t

a l l ows you t o a sce r t a i n i f t he fund ' s r e t u rn s ou tpe r fo rmed t he

marke t ' s , g i ven t he s ame amoun t o f r i sk .

The h ighe r a f unds r i sk l eve l , t he g r ea t e r t he r e t u rn s i t mus t

gene ra t e i n o rde r t o p roduce a h igh a lpha .

Norma l ly one wou ld l i ke t o s ee a pos i t i ve a l pha fo r a l l o f t he

funds owned . Bu t a h igh a lpha does no t mean a fund i s do ing a

bad j ob no r i s t he v i ce ve r sa t r ue a s a l pha measu re s t he ou t

pe r fo rmance r e l a t i ve t o be t a . So t he l im i t a t i ons t ha t app ly t o be t a

wou ld a l so app ly t o a l pha .

A lpha can be u sed t o d i r ec t l y measu re t he va lue added o r

sub t r ac t ed by a fund ' s manage r .

The accu racy o f an a lpha r a t i ng depends on two f ac to r s :

1 ) t he a s sumpt ion t ha t ma rke t r i sk , a s measu red by be t a , i s t he

on ly r i sk measu re nece s sa ry ;

2 ) t he s t r eng th o f f und ' s co r r e l a t i on t o a chosen benchmark such

a s t he BSE Sensex o r t he NIFTY.

5 . Sharpe Rat io

Sha rpe Ra t i o= Fund r e tu rn i n exce s s o f r i sk f r e e r e t u rn / S t anda rd

dev i a t i on o f Fund

In ca se funds have l ow co r r e l a t i on w i th i nd i ce s o r benchmarks ,

t hey shou ld be eva lua t ed u s ing t he Sha rpe r a t i o . S ince i t u se s

on ly t he S t anda rd Dev i a t i on , wh ich measu re s t he vo l a t i l i t y o f t he

r e t u rn s t he r e i s no p rob l em o f benchmark co r r e l a t i on .

The h ighe r t he Sha rpe r a t i o , t he be t t e r a f unds r e tu rn s r e l a t i ve t o

t he amoun t o f r i sk t aken .

Sha rpe r a t i o s a r e i dea l f o r compa r ing funds t ha t have a m ixed

a s se t c l a s se s . Tha t i s ba l anced funds t ha t have a componen t o f

f i xed i ncome o f f e r i ngs .

RESEARCH DESIGN &

SAMPLING

METHODOLOGY

RESEARCH DESIGN

NON-PROBABILITY

EXPLORATORY & DISCRIPTIVE EXPERIMENTAL

RESEARCH

The r e sea r ch i s p r ima r i l y bo th exp lo ra to ry a s we l l a s de sc r i p t i ve

i n na tu r e . The sou rce s o f i n fo rma t ion a r e bo th p r ima ry &

seconda ry .

A we l l - s t r uc tu r ed ques t i onna i r e was p r epa red and pe r sona l

i n t e rv i ews we re conduc t ed t o co l l e c t t he cus tomer ’ s pe r cep t i on

and buy ing behav io r , t h rough t h i s ques t i onna i r e .

SAMPLING METHODOLOGY

Sampl ingTechn ique :

In i t i a l l y , a r ough d ra f t was p r epa red keep ing i n m ind t he

ob j ec t i ve o f t he r e sea r ch . A p i l o t s t udy was done i n o rde r t o know

t he a ccu racy o f t he Ques t i onna i r e . The f i na l Ques t i onna i r e was

a r r i ved on ly a f t e r c e r t a i n impor t an t changes we re done . Thus my

samp l ing came ou t t o be j udemen ta l and conv inen t

Sampl ing Uni t :

The r e spondan t s who we re a sked t o f i l l ou t ques t i onna i r e s a r e t he

s amp l ing un i t s . These compr i s e o f emp loyees o f MNCs , Gov t .

Employees , Se l f Employeds e t c .

Sample s i z e :

The s amp le s i z e was r e s t r i c t ed t o on ly 50 , wh ich compr i s ed o f

ma in ly peop l e s f rom d i f f e r en t r eg ions o f De lh i due t o t ime

cons t r a in t s .

Sampl ing Area :

The a r ea o f t he r e sea r ch was New De lh i , I nd i a .

Objec t ive –

(v i ) To Tes t t he awa renes s l eve l i n t he ma rke t f o r Un i t

L inked In su rance P l ans (ULIPs ) and Mutua l Fund .

(v i i ) To f i nd t he mos t popu l a r i nves tmen t avenues among

samp le o f i nves to r s .

( v i i i ) To f i nd t he impor t ance o f va r i ous i nves tmen t s ba sed

pa rame te r s among samp le o f i nves to r s .

( i x ) To i den t i fy t he po t en t i a l cu s tomer s a c ro s s l oca t i ons , age -

g roups , p ro f e s s ion .

(x ) To ge t an i dea o f cus tomer expec t a t i ons i n t e rms o f r a t e

o f r e t u rn .

Methodo logy –

Dra f t Ques t i onna i r e – To fu l f i l l t he ob j ec t i ve s o f t he ma rke t

s t udy , we de s igned a d r a f t ques t i onna i r e . A copy o f t he d r a f t

ques t i onna i r e i s added i n t he append i ce s .

Su rvey – A Su rvey was t hen conduc t ed w i th t he a id o f t he

ques t i onna i r e hav ing 6 ques t i ons i n add i t i on t o pe r sona l

i n fo rma t ion . The exe rc i s e was unde r t aken t o co l l e c t da t a fo r

ana ly s i s f o r t he p ro j ec t .

Observa t ions o f the Survey -

We obse rved t ha t peop l e a r e r e l uc t an t i n d i s c lo s ing t he i r exac t

i nves tmen t and l i f e i n su rance po r t fo l i o .

Moreove r , i t was obse rved t ha t t he r e i s a g r ea t deg ree o f b i a sne s s

a s f a r a s l i f e i n su rance i s conce rned . Mos t o f t he peop l e who

r e sponded t o t he p i l o t su rvey i nd i ca t ed t he i r l i f e - i n su rance

subsc r i p t i on a s an i nves tmen t . Whi l e ma jo r i t y o f t hem t ake l i f e -

i n su rance fo r t ax -bene f i t s , t he r e a r e ve ry f ew who subsc r i be t o

l i f e - i n su rance s chemes fo r l i f e - cove r fo r wh ich i t i s i n t ended .

Ma jo r i t y o f t he r e sponden t s we re found t o be unaware o f t he

exac t r e t u rn s t hey r ece ived f rom the i nd iv idua l i nves tmen t s i n t he

pa s t f i ve yea r s .

The r e sponden t s d i s l i ked f i l l i ng - i n t oo many en t r i e s . Some peop l e

even r e fu sed t o f i l l - i n a f t e r s ee ing a t h r ee -page r ques t i onna i r e .

Responden t s we re r e l uc t an t i n d i s c lo s ing some o f t he i r pe r sona l

de t a i l s l i ke mob i l e number , add re s s , o f f i c e , pay package .

Responden t s i nd i ca t ed t ha t t hey do no t wan t any unso l i c i t ed ca l l s

f r om the t e l e ca l l e r s .

The r e sponden t p ro f i l e c an be s t ud i ed w i th t he a id o f t he

fo l l owing g r aphs :

FINDING AND ANALYSIS

FINDING AND ANALYSIS Gender:

Male Female32 18

Age Group 20-30Y 31-40Y 41-50Y Above 50Y

16 20 9 5

Profession Service Business House hold Any Other

22 27 1

Monthly Income 10-20K 21-40K 41-60k Above 61K

5 16 8 21

Results –

Awareness of ULIP:

Uni t L inked In su rance P l ans have emerged i n t he Ind i an marke t

on ly a f ew yea r s ago . The marke t ga ined momen tum on ly a f t e r t he

p r i va t e i n su re r s c ame i n w i th a va r i e t y o f i nnova t i ve marke t

l i nked i n su rance cum inves tmen t p l ans . The popu l a r i t y o f ULIP i s

l ower a s compa red t o o the r i nves tmen t avenues . Wi th t he

so f t en ing o f i n t e r e s t r a t e s , t r ad i t i ona l i nves tmen t p roduc t s have

become l e s s popu l a r and more i nves to r s a r e be ing a t t r a c t ed

t owards s t ock marke t and Mutua l Funds . A lmos t a l l t he

r e sponden t s a c ro s s c a t ego r i e s have t aken t e rm o r endowmen t

i n su rance bu t t he r e a r e on ly a f ew who have t aken a ULIP . Th i s

may be a t t r i bu t ed t o l ower awa renes s l eve l . Many r e sponden t s

spec i f i c a l l y i nd i ca t ed t ha t t hey do no t have any i dea abou t a ULIP

p l an .

As f a r a s i n su rance i n conce rned , mos t o f t he r e sponden t s we re

t i l t ed i n t he i r op in ions t owards t he L i f e In su rance Corpo ra t i on ’ s

po l i c i e s . I n l i f e i n su rance bus ine s s , more t han 75 % o f t he ma rke t

i s a cqu i r ed by t he L IC . As i t i s a Pub l i c Sec to r En t e rp r i s e , peop l e

have more f a i t h i n i t . Bu t s l owly , t he p syche o f peop l e i s

chang ing a s more and more p r i va t e p l aye r s a r e coming up w i th

i nnova t i ve and a f fo rdab l e p l ans . Las t yea r , Ba j a j A l l i anz had t he

max imum marke t sha r e among t he p r i va t e l i f e i n su re r s i n t e rms o f

new p remiums pa id .

A l though L IC have a l so come up w i th i t s ULIP po l i cy bu t peop l e

a r e more i n t e r e s t ed i n buy ing ULIPs f rom p r iva t e p l aye r s because

o f t he i r h ighe r and s t e ady r e tu rns . The Ba j a j A l l i anz Un i t Ga in -

Equ i t y Ga in P l an ha s g iven t he h ighes t Compounded Annua l

Growth Ra t e o f r e t u rn o f 64 .03 % s ince i ncep t i on .

The su rvey ove ra l l y i e l ded fo l l owing r e su l t s :

1. Have you insured your life?

Yes No

37 13

2. Are you aware about the working of MFs, ULIPs & concepts like NAV, Exit

load?

Yes and that too

in detail

Yes but a little bit No

7 28 15

3. Do you make any sort of investment?

Yes No

38 12

4. If yes, which of the following constitutes a major chunk of your investment

portfolio?

Fixed Deposits 7 Bonds 9

Real Estate 4 ULIP 6

Mutual Funds 10 Govt securities & certificates 8

Shares 6

5. Which is the most important parameter for you while selecting the mode of

investment?

High returns 12 Tax free

proceeds

10

Safety 9 Flexibility 8

Liquidity 4 Transparency 7

6. What is the primary reason which prompts you to invest?

Building cash

reserves

7 To supplement

income

10

Tax benefits 12 Others 11

Future security 10

7. Which of the following investment offer you would select? Investment

yielding-

High Returns irrespective of the risk 11

Low Risk irrespective of the returns 16

Reasonable returns with medium risk 23

8. Do you invest in MFs? If yes, then with which company do you have the

MFs?

UTI 6 ICICI 10

SBI 13 Reliance 7

Kotak

Mahindra

4 Others 10

9. Have you opted for ULIP? If yes, then of which of the following:

Bajaj Allianz 10 HDFC

Standard

Life

7

ICICI Prudential 16 Max New York 8

KMLI 4 Others 5

10. Which of the following factor plays a crucial role while selecting the mutual

funds or ULIP?

Broker/ Agent Recommendation

8 Brand name 12

Friends/ Relatives Suggestions

10 Advertisement 6

Performance of the product

14

11. How oftenly do you invest? Weekly Monthly Quarterly Half Yearly Yearly More than a

yearly15 9 8 1 14 3

12. What do you prefer Low Risk Low Return Moderate Risk Moderate

ReturnHigh Risk High Return

4 27 19

13. Reasons for InvestmentChild Education Child’s Marriage Retirement Emergency

Purpose13 17 13 19

14. Where Have you Invested Mutual Fund Fixed Deposit ULIP Real Estate

21 10 34 25

15. Which one you prefer in Future?

Mutual Fund ULIP20 30

Segment wise analysis (of questions 11 to 15)

On the bas i s o f age

I f we ana ly se t he r e su l t s on t he ba s i s o f s egmen t s fo rmed by

t ak ing age i n t o cons ide ra t i on , we can obse rve t ha t t ha t i n t he 20 -

30 age g roups , peop l e we re found t o be ve ry agg re s s ive i n t he i r

i nves tmen t pa t t e rn .

FOR THE AGE GROUP OF 20-30

How oftenly do you invest? Weekly Monthly Quarterly Half Yearly Yearly More than a

yearly6 1 6 1 2

What do you prefer

Low Risk Low Return Moderate Risk Moderate Return

High Risk High Return

9 7

Reasons for InvestmentChild Education Child’s Marriage Retirement Emergency

Purpose5 3 2 10

Where Have you Invested Mutual Fund Fixed Deposit ULIP Real Estate

8 3 10 9

Which one you prefer in Future? Mutual Fund ULIP

6 10

Th i s s egmen t o f t he r e sponden t s i s qu i t e a c t i ve on t he i nves tmen t

f ron t w i th max imum re sponden t s i nves t i ng on e i t he r a week ly o r a

qua r t e r l y ba s i s . The r i sk appe t i t e f o r t h i s s egmen t i s

p r edominan t l y mode ra t e w i th 56% o f t he peop l e op t i ng fo r

mode ra t e r i sk w i th un fo re seen c i r cums t ances and emergenc i e s

r ema in ing t he mo t iva t i ng f ac to r l a rge ly beh ind t he i r i nves tmen t s .

The r e sponden t s p r e f e r t o i nves t i n u l i p s and r ea l e s t a t e a lmos t

equa l l y . Howeve r be tween mu tua l f unds and ULIPS a s t he

p r e f e r r ed op t i on fo r f u tu r e , ULIPS emerged a s a w inne r .



yearly9 5 6

What do you prefer Low Risk Low Return Moderate Risk Moderate


9 11


Purpose5 8 6 6


20 14



yearly2 2 4 1



2 6 1


Purpose3 3 3 3


5 4 1 1


5 4

Th i s s egmen t i s a combina t i on o f i n f r equen t i nves tmen t s bu t a

good r i sk appe t i t e . The r ea sons beh ind t he i nves tmen t a r e equa l l y

d i s t r i bu t ed be tween f ami ly , r e t i r emen t p l ans and emergency

pu rpose s . Fo r t h i s s egmen t mu tua l f unds a r e t he c l e a r w inne r w i th

t he cu r r en t a s we l l a s t he fu tu r e p r e f e r ences focused on t h i s

avenue on ly .

FOR THE AGE GROUP OF ABOVE 50


yearly1 2 2



2 3


Purpose3 1 1

Where Have you Invested Mutual Fund Fixed Deposit ULIP & Real Estate

2 3 1


3 2

Peop l e above 50y r s o f age p r e f e r i nves t i ng l e s s o f t en ly , t hey

gene ra l l y i nves t e i t he r annua l l y o r more t han once i n a yea r t ha t

t oo whe re t he r i sk i nvo lve i s e i t he r l ow o r mode ra t e i e t hey a r e

r i sk ave r se . R i sk t ak ing ab i l i t y i s d i r e c t l y p ropo r t i ona t e t o t he

age , a s younge r peop l e t ake h ighe r r i sk s , be ing r i sk ave r se t hey

p r e f e r i nves t i ng i n mu tua l f unds o r f i xed depos i t s a s t hey a r e

l e a s t r i sky . A l so t he ma in r ea son fo r i nves t emen t i s e i t he r ch i l d ’ s

ma r r i age a s by t he age o f 50 ch i l d r en a r e a l r e ady g rown up , o r f o r

r e t i r emen t pu rpose .

ON THE BASIS OF INCOME

FOR THE Income Group of 10000-20000


yearly3 2



1 2 2


Purpose1 1 1 3

Where Have you Invested Mutual Fund Fixed Deposit ULIP

3 2 1


2 3

Low income g roup gene ra l l y p r e f e r i nves t i ng annua l l y a s t he i r

i ncome i s l ow & they can t i nves t mon th ly , t hey s ave l e s s . A l so , a s

t he i r i ncome i s l ow they p r e f e r h igh o r mode ra t e r i sk because

t hey g ive h ighe r r e t u rn s . Th i s i ncome g roup mos t l y p r e f e r s av ing

& inves t i ng fo r emergenc i e s a s t he i r p ro f e s s iona l l i f e , i n mos t

c a se s , ha s j u s t s t a r t ed .



yearly1 4 10 1



2 14


Purpose1 4 8 4

Where Have you Invested

Mutual Fund Fixed Deposit Real Estate ULIP 6 5 3 6


12 4

Midd l e i ncome g roup no rma l ly i nves t annua l l y a s t hey s ave l e s s

a s t he i r i ncome i s mode ra t e & they can ’ t i nves t mon th ly , a l so t hey

p r e f e r l i t t l e r i sk i e r i nves t emen t s t o ensu re h ighe r r e t u rn s . These

i ncome peop l e s ave fo r t he fu tu r e s ecu r i t y and hence i nves t

mos t l y i n mu tua l f unds a s MFs a r e mode ra t l y r i sky , a l so t hey

make t he i r f ami l i e s s ecu re & hence i nves t i n i n su rance ULIP i n

ou r c a se .



yearly6 1 1



5 3


Purpose3 2 3

Where Have you Invested Mutual Fund Fixed Deposit Real Estate ULIP

2 2 3 7


2 6

High i ncome g roup mos t l y i nves t week ly w i th h igh o r med ium

l eve l o f unce r t a i n i t y a s t hey can a f fo rd a s t hey have h ighe r

i ncome l eve l . Th i s g roup i s t he mos t l y s aves fo r emergenc i e s &

inves t i n ULIPS a s make t he i r f u tu r e s ecu red a s t h i s g roup i s

mos t l y m idd l e aged g roup .

FOR THE Income Group of Above 61000


yearly9 7 4 1



7 14


Purpose11 9 2 9


4 1 19 20


4 17

High i ncome g roup i nves t week ly w i th h igh & mode ra t e r i sk s a s

t hey can a f fo rd w i th t he ma jo r pu rpose o f ch i l d ma r r i age a s t he se

a r e t he peop l e mos t l y m idd l e aged o r above . These peop l e i nves t

i n r e a l e s t a t e & ULIPs , r e a l e s t a t e pa r t i cu l a r l y a r e no rma l ly fo r

l ong t e rm inves t e r s & th i s g roup can a f fo rd l ong t e rm

inves t emen t s a s t hey don ’ t need r egu l a r sou rce o f i ncome .

FOR THE OCCUPATION (BUSINESS)


yearly12 2 5 5 2



3 11 13


Purpose5 7 2 15


14 6 14 19


9 18

As t he bus ine s s c l a s s peop l e have compa ra t i ve ly h igh l eve l o f

r i sk t ak ing ab i l i t y t he se peop l e ope ra t e i n sho r t t e rm & hence

i nves t week ly , a s i n sho r t t e rm compara t i ve ly t he unce r t a i n i t y

l eve l i s h ighe r t han i n l ong t e rm . Th i s g roup l e a s t he s i t a t e i n

t ak ing h ighe r l eve l o f r i sk The ma in pu rpose i s emergenc i e s a s

t he se peop l e ope ra t e i n h ighe r r i sk .

FOR THE OCCUPATION (SERVICE)


yearly3 6 2 1 9 1



1 15 6


Purpose7 9 8 4


7 4 10 14


11 11

Se rv i ce c l a s s peop l e i s t he mos t r a t i ona l c l a s s t hey t ake l ow l eve l

o f r i sk s a s t hey can t a f fo rd t o l oose a s ma in ly t he i r i ncome l eve l

i s l ow hence t hey i nves t annua l l y w i th r i sk s no t t oo h igh no r t oo

l ow . These peop l e s ave & inves t s t o make t he i r & the i r f ami l i e s ’

f u tu r e s ecu red .

Conclusion

CONCLUSION

ULIPs fo rm an a t t r a c t i ve i nves tmen t avenue and have a l o t o f

po t en t i a l f o r g rowth . Howeve r t he ma jo r h ind rance obse rved ha s

been t he l a ck o f awa renes s r ega rd ing t he s ame .

F rom the su rvey we can conc lude s a f e ly t ha t t he age g roup

be tween 20 -30 yea r s shows t he max imum inc l i na t i on t owards

ULIPs a s a f u tu r e i nves tmen t avenue . I t cons t i t u t e s a popu l a r

cho i ce among t hem even i n t he p r e sen t po r t fo l i o w i th r e a l e s t a t e

be ing t he o the r p r e f e r r ed cho i ce .

Even i n o the r s egmen t s , i t s l a rge ly due t o l a ck o f adequa t e

i n fo rma t ion and r e su l t i ng con f idence i n t he p roduc t , conven t i ona l

i n s t rumen t s a r e be ing p r e f e r r ed .

Aggre s s ive marke t i ng and mass awa renes s p rog rammes need t o be

conduc t ed t o r e a l i z e t he a c tua l po t en t i a l o f t h i s p roduc t .

RECOMMENDATIONS

RECOMMENDATIONS

1 . Because o f t he h igh f i r s t - yea r cha rge s , mu tua l f unds a r e a

be t t e r op t i on i f you have a f i ve -yea r ho r i zon .

Bu t i f you have a ho r i zon o f 10 yea r s o r more , t hen ULIPs have

an edge . To exp l a in t h i s f u r t he r a ULIP ha s h igh f i r s t - yea r

cha rge s t owards a cqu i s i t i on ( i nc lud ing agen t s ’ commis s ions ) .

As a r e su l t , t hey f i nd i t d i f f i cu l t t o ou tpe r fo rm mu tua l f unds i n

t he f i r s t f i ve yea r s . Bu t i n t he l ong - t e rm , ULIP manage r s have

s eve ra l advan t ages ove r mu tua l f und manage r s .

S ince po l i cyho lde r p r emiums come a t r egu l a r i n t e rva l s ,

i nve s tmen t s c an be p l anned ou t more even ly .

Mu tua l f und manage r s c anno t t ake a s im i l a r l ong - t e rm v i ew

because t hey have bu lk i nves to r s who can move money i n and ou t

o f s chemes a t sho r t no t i c e .

2 . Ano the r ma jo r obs t ac l e t ha t was f a ced du r ing t he p ro j ec t was

pub l i c unawarenes s r ega rd ing ULIPS . So f i r s t and fo r emos t i t ’ s

impor t an t t o unde r t ake s t eps t o c r ea t e an awarenes s fo r t he s ame .

To t h i s end , f o l l owing s t eps c an be i n i t i a t ed :

Adver t i s emen t Campa igns - agg re s s ive marke t i ng s t r a t eg i e s

shou ld be adop t ed w i th a spec i a l f ocus on educa t i ng t he Ind i an

masse s abou t t he bene f i t s o f ULIPs bo th TV a s we l l a s r ad io can

be made u se o f f o r t he s ame .

Road Shows – t h i s c an be ano the r means o f r e ach ing t a rge t

ma rke t e f f ec t i ve ly a s pocke t s o r a r ea s cou ld be i den t i f i ed whe re

demand and marke t f o r ULIP wou ld be i nc r ea se fo r i n s t ance i n

urban a r ea s , peop l e may be more w i l l i ng and open t o t h i s new

concep t t han t he ru r a l a r ea s .

Hoard ings and b i l l boards – t h i s f o rms a ve ry e f f ec t i ve means o f

mass commun ica t i ons . A t t r a c t i ve and i n fo rma t ive b i l l boa rds c an

be de s igned and l oca t ed a t s t r a t eg i c l oca t i ons a t s t r a t eg i c

l oca t i ons l i ke ma rke t s , h ighways and o the r busy roads .

Tra in agen t s and the s t a f f : educa t e and t r a i n agen t s and t he

s t a f f who ac tua l l y have an i n t e r f ace w i th t he cus tomer s abou t a l l

t he a spec t s o f t he ULIPs and equ ip t hen w i th so lu t i ons t o a l l t he

FAQs . They shou ld be i n s t ruc t ed t o p i t ch fo r t he p roduc t t o eve ry

p rospec t i ve cus tomer by p rov id ing f i nanc i a l mo t iva t i on t o t hem a s

we l l . Va r ious i n house compe t i t i ons cou ld be o rgan i zed a s a

means o f s t imu la t i ng en thus i a sm among t he emp loys .

Financ ia l incen t i v e s - i n o rde r t o mo t iva t e t he agen t s and

emp loyees , f i nanc i a l i ncen t i ve s cou ld a l so be p rov ided w i th

h ighe r r ewa rds fo r ULIPs i n compa r i son t o FDs and gene ra l

i n su rance po l i c i e s . Non f i nanc i a l i ncen t i ve s l i ke c e r t i f i c a t e s and

o the r f o rms o f r e cogn i t i on can a l so be p rov ided t o t he s t a f f .

3 . A be t t e r a l t e rna t i ve t o a ULIP i s a combina t i on o f l ow-cos t

t e rm in su rance and a good equ i t y mu tua l f und . Te rm in su rance

p rov ide s cove rage fo r a spec i f i ed pe r i od , and i s amongs t t he

cheapes t i n su rance p roduc t s . I t s no - f r i l l s de s ign on ly cove r s you r

l i f e f o r a f i xed pe r i od . Combin ing i t w i t h an equ i t y , ba l anced o r

deb t mu tua l f und g ive s you t he bene f i t s o f a ULIP a t a much

l ower cos t . I n t he end , you r l ong - t e rm r e tu rns a r e h ighe r .

Limitations of the

project

Limitations of the project

The comple t i on o f t he p ro j ec t s aw the fo l l owing l im i t a t i ons :

The s cope o f t he s t udy was l im i t ed t o a sma l l s amp le s i z e

a c ro s s De lh i NCR Reg ion .

Awarenes s r ega rd ing ULIPs wasn ’ t so w idesp read . Hence

peop l e we re no t ve ry r e spons ive t owards t he p ro j ec t .

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

Uni t L inked In su rance P l ans and t he Mutua l Funds a r e t he needs

o f t he p r e sen t wor ld a s we can s ee t ha t i n t he t oday ’ s s cena r io

peop l e have bo th , t he r e sou rce s and t he way t o u se i t . I nves tmen t

i s no t a new t e rm; a s i t ha s go t a l ong h i s t o ry . I n t he p r e sen t t ime

t he r e a r e s eve ra l s ec to r s i n wh ich peop l e a r e e a s i l y r e ady t o

i nves t t he i r ha rd ea rned money . And t h i s i s t he on ly r e a son why

f i nanc i a l s ec to r i s g rowing l i ke any th ing .

MUTUAL FUNDS

Mutua l Fund i s an i n s t rumen t o f i nves t i ng money . One o f t he

op t i ons i s t o i nves t t he money i n s t ock marke t . Bu t a common

inves to r i s no t i n fo rmed and compe t en t enough t o unde r s t and t he

i n t r i c ac i e s o f s t ock marke t . Th i s i s whe re mu tua l f unds come t o

t he r e scue .

ULIP (UNIT LINKED INSURANCE PLANS)

Un i t l i nked i n su rance p l an (ULIP) i s l i f e i n su rance so lu t i on t ha t

p rov ide s fo r t he bene f i t s o f p ro t ec t i on and f l ex ib i l i t y i n

i nves tmen t . The i nves tmen t i s deno t ed a s un i t s and i s r ep re sen t ed

by t he va lue t ha t i t h a s a t t a i ned ca l l ed a s Ne t Asse t Va lue (NAV) .

The po l i cy va lue a t any t ime va r i e s a cco rd ing t o t he va lue o f t he

unde r ly ing a s se t s a t t he t ime .

ULIP p rov ide s mu l t i p l e bene f i t s t o t he consumer . The bene f i t s

i nc lude :

Li fe p ro t ec t i on

Inves tmen t and Sav ings

Flex ib i l i t y

Adjus t ab l e L i f e Cove r

Inves tmen t Op t ions

Transpa rency

Opt ions t o t ake add i t i ona l cove r aga in s t

Dea th due t o a cc iden t

Disab i l i t y

Cr i t i c a l I l l ne s s

Surge r i e s

Liqu id i t y

Tax p l ann ing

The ob j ec t i ve o f t he p ro j ec t was t o ana lyze t he ma rke t t r end t ha t

wha t a t t i t ude does a cus tomer bea r s when he o r she t h inks abou t

t he i nves tmen t . Th i s p ro j ec t concen t r a t ed on t he be s t mode o f

i nves tmen t a s bo th Mutua l Funds and ULIP a r e becoming ve ry

f amous and s e l l i ng l i ke ho t c akes i n t he f i nanc i a l ma rke t . Bu t t he

cus tomer a lways t h inks t ha t wh ich one i s t he be t t e r one and why

he o r she shou ld i nves t i n t h i s pa r t i cu l a r p l an .

ULIPs a r e l i f e i n su rance p l ans whose r e tu rn s a r e l i nked t o t he

s t ock marke t s . ULIP r e tu rns f l uc tua t e w i th t he ups and downs i n

t he s t ock marke t . Mu tua l Fund a r e co l l e c t i ve i nves tmen t veh i c l e s

t ha t poo l r e sou rce s o f va r i ous i nves to r s and i nves t s t he se

r e sou rce s i n a d ive r s i f i ed po r t fo l i o compr i s i ng o f s t ocks , bonds o r

money marke t i n s t rumen t s . A l though bo th t he se p roduc t s a r e

somewha t d i f f e r en t i n t he i r work ing bu t more o r l e s s t he fund

poo l ed i n bo th o f t hem a r e i nves t ed s im i l a r l y . Wi th t he adven t o f

Un i t L inked In su rance P l ans , t he l i f e i n su rance p roduc t s have

changed f rom be ing on ly a l i f e cove r p roduc t t o an i nves tmen t

veh i c l e w i th bu i l t - i n f e a tu r e s o f l i f e i n su rance and t ax bene f i t s .

I nd i an marke t o f f e r s a huge s cope fo r ULIPs a s a p roduc t s i nce

even t oday i t s l a rge ly unde r i n su red and w i th gene ra l i ncome

l eve l on a r i s e eve ry one i s l ook ing fo r i nves tmen t avenues .

Howeve r awa renes s r ega rd ing t h i s i n s t rumen t i s r e a l l y poo r and

hence e f fo r t s need t o be made t o b r i ng i t t o t he fo r e f ron t .

T rad i t i ona l avenues l i ke L IC po l i c i e s and FDs s t i l l f o rm the

f avo red de s t i na t i on fo r i nves tmen t s .

REFERENCES &

ANNEXUSE

REFERENCE

www.google.com

www.thehindubusinessline.com

http://ia.rediff.com/money

www.wikipedia.com

Outlook Money May, 2006

www.economictimes.com

www.timesofindia.com

www.mutualfudsindia.com

www.traderji.com

www.timesmoney.com

http://insuranceproductinfo.blogspot.com/2008/03/comparison-of-ulip-funds-

vs-mutual-fund.html

www.maxnewyorklife.com

ANNEXURE:

a) TABLES

PERFORMANCE OF VARIOUS FUNDS –

COMPARISON OF ULIP FUNDS

Launch Date

Returns (%)

Scheme FUND OPTION Since inception

ICICI Prudential Balancer 16-Nov-01 17.51ICICI Prudential Maximiser 16-Nov-01 30.7ICICI Prudential Preserver 17-May-04 5.17ICICI Prudential Protector 16-Nov-01 9.05

TATA AIG Liquid 2-Mar-04 3.18

TATA AIG Growth 2-Mar-04 19.7

TATA AIG Balanced 2-Mar-04 12.06

TATA AIG Equity 2-Mar-04 30.91

Bajaj Allianz Unit Gain Plus Debt Plus 22-Jul-04 2.76

Bajaj Allianz Unit Gain Plus Cash Plus 22-Jul-04 4.99

Bajaj Allianz Unit Gain Plus Balanced Plus 22-Jul-04 16.47

Bajaj Allianz Unit Gain Plus Equity Index 22-Jul-04 32.22

Bajaj Allianz Unit Gain Plus Equity Plus 22-Jul-04 48.16

Bajaj Allianz Unit Gain Plus

Equity Midcap Plus 9-Mar-05 38.25

LIC Bima Plus Secure 12-Feb-01 12.15

LIC Bima Plus Balanced 12-Feb-01 14.21

LIC Bima Plus Risk 12-Feb-01 19.04

HDFC Standard Life Secure 2-Jan-04 0.93HDFC Standard Life Liquid 2-Jan-04 4.33

HDFC Standard Life Defensive 2-Jan-04 6.97

HDFC Standard Life Balanced 2-Jan-04 13.55

HDFC Standard Life Growth 2-Jan-04 23.48

Birla Sun Individual Life Protector 22-Mar-01 1.49

Birla Sun Individual Life Builder 22-Mar-01 13.2

Birla Sun Individual Life Enhancer 22-Mar-01 19.7

Birla Sun Individual Life Creator 23-Feb-04 7.54

Birla Sun Individual Life Magnifier 12-Aug-04 25.26

SBI Horizon Bond 10-Jan-05 6.08

SBI Horizon Equity 10-Jan-05 47.3

Kotak Life Safe Investment Plan Gilt 20-Jun-03 4.21

Kotak Life Safe Investment Plan Bond 20-Jun-03 3.18Kotak Life Safe Investment Plan Growth 20-Jun-03 28.25

Kotak Life Safe Investment Plan Balanced 20-Jun-03 21.41

Kotak Life Safe Investment Plan

Aggressive Growth 13-Sep-04 30.77

Max New York Secure 15-Oct-04 5.27

Max New York Conservative 15-Oct-04 18.3

Max New York Balanced 15-Oct-04 10.93

Max New York Growth 15-Oct-04 31.61

Max New York Preserver 10-Feb-05 4.36Source: Outlook Money Jan. 15,2006

Performance Comparison of Mutual Funds –

Equi ty L inked Sav ings Scheme - A spec i a l p roduc t o f f e r ed by

mu tua l f unds . These s chemes i nves t i n equ i t y i . e sha r e s and

gene ra l l y have a l ock - in pe r i od o f t h r ee yea r s .

Equity-linked Savings Schemes

NAV

Launch Date

Returns (%) RAR2

Rank Scheme (Rs)1 1-Yr 3-Yr 5-YrSince

inception (%)

1SBI Magnum Tax Gain 93 48.43 31-Mar-93 99.7 92.04 32.19 19.27 8.1

2HDFC LT Advantage 87.24 27-Dec-00 57.05 75.91 49.5 49.52 8

3Pru ICICI Taxplan 93.93 9-Aug-99 70.96 79.47 43.76 36.75 7.4

4Birla Equity

Plan 53.33 16-Feb-99 57.14 71.75 35.37 33.93 7.3

5HDFC

Taxsaver 139.28 31-Mar-96 77.78 79.4 44.14 45.42 7.3

6Birla Taxplan

98a 187.29 1-Dec-97 59.68 72.74 38.83 40.96 7

7Sundaram Taxsaver 26.12 22-Nov-99 62.58 68.14 36.03 26.52 5.6

8Principal Tax

Savings 74.72 31-Mar-96 47.38 57.33 31.8 21.99 5.2

9

Sundaram Tax Saver

97a 35.42 31-Mar-97 40.96 53.93 29.12 21.31 5.1

10

Franklin India

Taxshield 97a 111.87 31-Mar-97 38.25 50.78 25.49 26.51 5.1

B) GRAPHSRETURNS OF EQUITY FUNDS

0

10

20

30

40

50

60

1

FUNDS

RE

TU

RN

S (

Sin

ce In

cep

tio

n)

ICICI Prudential Maximiser TATA AIG Equity

Bajaj Allianz Unit Gain Plus Equity Plus LIC Bima Plus Risk

HDFC Standard Life Growth Birla Sun Individual Life Magnifier

SBI Horizon Equity Kotak Life Safe Investment Plan Aggressive Growth

Max New York Growth

The ULIP Fund pe r fo rmance compa r i son ac ros s c a t ego r i e s shows

t ha t Baja j A l l i anz Un i t Ga in P lus – Equ i ty P lus Fund has g iven

the bes t r e turn o f 48 .16 % (CAGR) aga in s t t he benchmark

Annua l i z ed r e tu rn o f 36 .26 %. Th i s f und was r a t ed t he No.1

Per forming Fund wi th h ighes t r e t u rn o f 48 .16 % s ince i ncep t i on ,

by t he Ou t look Money Magaz ine , J anua ry 15 , 2006 i s sue . The

Ba j a j A l l i anz Equ i t y Mid cap P lu s Fund was r a t ed t he 3 r d Bes t

Pe r fo rming Fund by t he s ame i n s t i t u t i on .

RETURNS OF BALANCED FUNDS

0

5

10

15

20

25

1

FUND

RETURN(Since Inception)

UTI ULIP LIC ULIP ICICI Prudential TATA AIG

Bajaj Allianz Unit Gain Plus LIC Bima Plus HDFC Standard Life Birla Sun Individual Life

Kotak Life Safe Investment Plan Max New York

DEBT SCHEMES

0

2

4

6

8

10

12

14

1

FUNDS

RE

TU

RN

(S

ince

Ince

ptio

n)

ICICI Prudential Protector Bajaj Allianz Unit Gain Plus Debt Plus LIC Bima Plus Secure

HDFC Standard Life Secure Birla Sun Individual Life Protector SBI Horizon Bond

Kotak Life Safe Investment Plan Bond Max New York Secure

QUESTIONNAIRE

NAME: __________________ GENDER: M F

AGE: ________________ PROFESSION: SERVICE BUSINESS HOUSE HOLD ANY OTHER

MOBILE NUMBER : __________________

MONTHLY INCOME:10,000-20,000. 21,000-40,000. 41,000-60,000. 61,000 ABOVE

11. Have you insured your life?

Yes No

12. Are you aware about the working of MFs, ULIPs & concepts like NAV, Exit

load?

Yes and that too in detail

Yes but a little bit

No

13. Do you make any sort of investment?

Yes No

14. If yes, which of the following constitutes a major chunk of your investment

portfolio?

Fixed Deposits ULIP

Real Estate Govt securities & certificates

Mutual Funds Shares

Bonds

15. Which is the most important parameter for you while selecting the mode of

investment?

High returns Tax free proceeds

Safety Flexibility

Liquidity Transparency

16. What is the primary reason which prompts you to invest?

Building cash reserves To supplement income

Tax benefits Others (Specify)

Future security

17. Which of the following investment offer you would select? Investment

yielding

High Returns irrespective of the risk

Low Risk irrespective of the returns

Reasonable returns with medium risk

18. Do you invest in MFs? If yes, then with which company do you have the

MFs?

UTI SBI Reliance ICICI

Kotak Mahindra Others

19. Have you opted for ULIP? If yes, then of which of the following:

Bajaj Allianz ICICI Prudential HDFC Standard Life

KMLI Max New York Other (Specify)

20. Which of the following factor plays a crucial role while selecting the mutual

funds or ULIP?

Broker/ Agent Recommendation

Friends/ Relatives Suggestions

Performance of the product

Brand name

Advertisement

21. How often do you invest. ?Weekly Monthly QuarterlyHalf Yearly Yearly More Than a Year

22. What do you prefer?Low risk low return.Moderate risk moderate return.High risk high return

23. Reason for investment:

Child Education Child’s MarriageRetirement Emergency Purpose

24. Where have you invested?MUTUAL FUND FIXED DEPOSITULIP REAL ESTATE

25. Which one do you prefer in future?MUTUAL FUND ULIP.

Comparative Analysis of Unit Linked Insurance Plans and Mutual Funds [Max_ Newyork] (2)

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