-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 1
THE INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
AHMEDABAD
A Study on New IRDA ULIP Guidelines and Comparative Analysis on
New ULIP vis--vis Mutual Funds
ALUMNI REFERENCE NUMBER
SS/11-13/F/252/AHMEDABAD/ISBE
STUDENT NAME THESIS GUIDE NAME
PRASHANT MAHARSHI MR. TUSHAR DAVE
SIGNATURE OF STUDENT SIGNATURE OF GUIDE
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 2
ABSTRACT
In India, weve had over a decade of experience with multiple
investment options available for
us, where ULIPs and mutual funds play a very different role.
This has been a fairly well accepted idea. The number of
investors opting for ULIPs and Mutual
funds has gone up in high volume when compared with other
investment product and this is
because to gain equity high returns with high risk.
The recent past witnessed several leading Mutual fund companies
and ULIPs companies has
went with good success.
Looking at duo, there are several changes in the guidelines
provided by IRDA and hence what
were the outcomes that resulted into various changes would be
analyzed.
ULIP are nothing but Unit Link Insurance Plans, which provides
you a good platform for
investment with insurance cover, whereas Mutual funds are only
meant for investment
purpose and to make good returns in todays volatile market
conditions.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 3
CERTIFICATE OF ORIGINALITY
This is to certify that this thesis titled A Study on New IRDA
ULIP Guidelines and Comparative
Analysis on New ULIP vis--vis Mutual Funds is prepared and
submitted by Prashant Maharshi
to IIPM, Indian Institute of Planning and Management, Ahmedabad
in partial fulfillment for
the award of the Masters Degree in Business Administration and
this report has not been
submitted to this university or to any other university.
Date: 25th August 2013
Mr. Tushar Dave Prashant Maharshi
Cluster Head
ICICI Securities
Baroda, Gujarat.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 4
LETTER OF CONSENT
To,
The Dean,
IIPM,
Ahmedabad.
Dear Sir,
Subject: Consent to act as Thesis Guide
I, Tushar Dave, Cluster Head of ICICI Securities Ltd, Baroda,
express my consent to act as a guide
to Mr. Prashant Maharshi (Batch: PGP/ISBE/SS/2011-13). He has
expressed his interest in
writing thesis on A Study on New IRDA ULIP Guidelines and
Comparative Analysis on New
ULIP vis--vis Mutual Funds and has requested me to guide him
through the same.
This is to inform that I shall support him as guide for his
thesis on the abovementioned topic
and share my knowledge and help in all possible ways.
With warm Regards
Yours Faithfully
Tushar Dave
Cluster Head
ICICI Securities
M 8980006742
Email [email protected]
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 5
ACKNOWLEDGEMENT
First and foremost, I offer my sincerest gratitude to my
supervisor, Mr. Tushar Dave, who has
supported me throughout my thesis with his patience and
knowledge. He has shared thoughtful
suggestions and valuable comments on every chapter on my work.
His guidance helped me
throughout the research and writing of this thesis. Without him,
this thesis could not have been
completed.
My sincere thanks also go to our faculties, staff members, and
whole IIPM fraternity and all our
seniors and colleagues who have helped me to carry out this
whole project with their
enthusiasm, encouragement and assistance.
Once again, I would like to thank my thesis guide Mr. Tushar
Dave who gave me precious
knowledge through discussions, over a period of time and bared
his precious time for
enlightenment of my knowledge regarding the topic which I could
put in my thesis to make it
more effective.
In my efforts, I would also like to extend my deep gratitude to
our Academic Head Prof. Robin
Thomas for his guidance and encouragement during the preparation
of project and also to
guide me through academic procedures and presentation
skills.
At last I would also like to extend my gratitude to the whole
IIPM, Ahmedabad fraternity for
their overwhelming support in overcoming the hurdles at initial
stage and during preparation
stage.
PRASHANT MAHARSHI
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 6
TABLE OF CONTENT
S.R NO PARTICULARS PAGE NO
1 Abstract 02
2 Certificate of Originality 03
3 Letter of Consent 04
4 Acknowledgements 05
5 Thesis Synopsis 07
6 Introduction to IRDA 11
7 IRDA Guidelines for ULIP 14
Recently Regulatory Initiatives 15
Need for Change 19
8 Introduction to ULIPs and Mutual Funds 21
ULIPs and Types of ULIPs 21
Mutual Funds and Types of Mutual Funds 22
9 Objectives and Limitations of study 28
10 Advantages and Risks Associated with ULIPs 29
11 Advantages and Disadvantages of Mutual Funds 30
12 Reason for Comparison 33
13 Comparison between ULIPs and Mutual Funds 34
14 Questionnaire 38
15 Data Interpretation and Analysis 42
16 Findings and Suggestions 65
17 Conclusions and Recommendations 66
18 Bibliography 67
19 Response Sheets 68
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 7
THESIS SYNOPSIS
Name: Prashant Maharshi
Batch: ISBE/PGP/SS/2011-13
Phone Number: 9510085579
Email Address: [email protected]
Course to which admitted: ISBE
Month & Year of admission: May, 2011
Place of Study: IIPM Ahmedabad
Thesis Topic: A Study on New IRDA ULIP Guidelines and
Comparative Analysis
on New ULIP vis--vis Mutual Funds
Specialization Area: Finance
Introduction:
ULIPs or Unit Linked Insurance Plans are financial products
which offer dual benefits of
Protection and Investments. These products are quite new to us
as they were introduced in
India only in the year 2002 and therefore have a history of only
ten years, as compared to
Mutual Funds (UTI came into existence in 1964 and Private Sector
MFs in 1993). ULIPs have
almost always been criticized by most Financial Advisors as
Costly. It is mostly in the list of
Not recommended products of prudent Financial Planners and they
alternatively recommend
a combination of Mutual Fund and Term Insurance. Although, I
agree that both Mutual Funds
and Term Insurance are great financial products, no one can
undermine the significance of
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 8
ULIPs as a long term complete financial product which addresses
the Protection, Investment,
Retirement as well as Tax Planning needs of an Individual.
The first ULIP was launched in India in 1971 by Unit Trust of
India (UTI).With the Government of
India opening up the insurance sector to foreign investors in
2001 and the subsequent issue of
major guidelines for ULIPs by the Insurance Regulatory and
Development Authority (IRDA) in
2005, several insurance companies forayed into the ULIP business
leading to an over
abundance of ULIP schemes being launched to serve the investment
needs of those looking to
invest in an investment cum insurance product.
A ULIP is basically a combination of insurance as well as
investment. A part of the premium paid
is utilized to provide insurance cover to the policy holder
while the remaining portion is
invested in various equity and debt schemes. The money collected
by the insurance provider is
utilized to form a pool of fund that is used to invest in
various markets instruments (debt and
equity) in varying proportions just the way it is done for
mutual funds. Policy holders have the
option of selecting the type of funds (debt or equity) or a mix
of both based on their investment
need and appetite. Just the way it is for mutual funds, ULIP
policy holders are also allotted units
and each unit has a net asset value (NAV) that is declared on a
daily basis. The NAV is the value
based on which the net rate of returns on ULIPs are determined.
The NAV varies from one ULIP
to another based on market conditions and the funds
performance.
Research Objective:
a. Address the popular misconceptions and myths about ULIPs.
b. Second aspects would be on the charges part. Address the
charges which were before
and today.
c. Study on New IRDA Guidelines to support ULIPs.
d. How ULIPs are better than Mutual Funds.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 9
Research Methodology:
a. Secondary Data:
Business magazines, Editorials, Newspapers, Internet surfing,
Library, and
Bibliographies.
b. Primary Data:
Guide and Expert Interviews.
Justification of choosing the topic:
This topic is very important to a student who has done
specialization in Finance. This topic
would give a good study on ULIPs and Mutual Funds and how one
should react when it comes
to investment in equities. As the investment is done in equity
market, but where one can
generate more returns is necessary. By the help of this thesis,
we would get clear idea regarding
the guidelines made by IRDA, the charges on investment in duo,
other features that one can
avail with the investments, comparisons between best investment
tools available in the market,
etc. Other than this, the topic would help us to study overall
market share of the products and
how it has grown in several years. How one has options of
diversified portfolio and how one can
switch his/her investment from one to another. Hence these are
some reasons and there are
various other reasons to choose this topic and that would be
coming under thesis.
Insurance companies profit will be impacted with the
introduction of new guidelines for unit-
linked plans (ULIP), which invest part of funds in equities-
according to insurance sector
regulator IRDA.
The regulator advised the insurance companies to reduce their
expenses to maintain the
bottom line in the long run.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 10
According to the sources the idea of guidelines is to have
impact. The concern for the insurance
industry is not what is going to happen in 2010-11. The concern
is that the industry must
remain healthy, be able to grow and be sustainable. The
insurance companies must take a look
at long term achievements and should bear with the initial
hiccups.
Insurance companies are of the opinion that the capping of
surrender charges and the even
distribution of charges over the lock-in period of five years
will adversely impact the
profitability of companies.
The companies as a result should adopt cost-cutting measures in
order to maintain the
profitability. Trying to contain cost, it is not by doing one
thing. There will be a host of things to
be implemented. The insurance companies should redesign their
products and they must be in
the interest of policy holders.
Summer Training Details:
Topic: Comparative study on Buyback, Takeover and Delisting of
Securities
Company Name: Interface Brokerage & Research limited
Area of Specialization: Finance
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 11
INTRODUCTION TO IRDA
The Insurance Regulatory and Development Authority (IRDA) is a
national agency run by the
Government of India. IRDA is based in Hyderabad and was formed
by an act of Indian
Parliament called as IRDA Act of 1999. Considering some of the
emerging requirements of the
Indian insurance industry, IRDA was amended in 2002. As stated
in the act mission of IRDA is
"to protect the interests of the policyholders, to regulate,
promote and ensure orderly growth
of the insurance industry and for matters connected therewith or
incidental thereto." Indian
insurance industry is regulated by the terms and conditions of
the IRDA.
Indian law has certain expectations from the IRDA to perform in
the Indian insurance industry.
IRDA should protect the interest of policyholders by ensuring
fair treatment by the insurance
companies. The growth of insurance companies in a speedy and
orderly manner should be
taken care by the IRDA. It should monitor and implement quality
competence and fair dealing
of the insurance companies in the industry. IRDA should make
sure that the insurers are
providing precise and correct information about the products
offered by them for the insurance
customers. IRDA should also ensure speedy settlement of genuine
claims of the policyholders
and prevent malpractices in the process of claims
settlement.
According to the Section 14 of IRDA Act of 1999 there are
certain duties, powers and functions
laid down for the IRDA and they are as follows:
(1) Subject to the provisions of this Act and any other law for
the time being in force, the
Authority shall have the duty to regulate, promote and ensure
orderly growth of the insurance
business and re-insurance business.
(2) Without prejudice to the generality of the provisions
contained in sub-section (1), the
powers and functions of the Authority shall include,
(a) Issue to the applicant a certificate of registration, renew,
modify, withdraw, suspend or
cancel such registration;
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 12
(b) protection of the interests of the policy holders in matters
concerning assigning of policy,
nomination by policy holders, insurable interest, settlement of
insurance claim, surrender value
of policy and other terms and conditions of contracts of
insurance;
(c) Specifying requisite qualifications, code of conduct and
practical training for intermediary or
insurance intermediaries and agents;
(d) Specifying the code of conduct for surveyors and loss
assessors;
(e) Promoting efficiency in the conduct of insurance
business;
(f) Promoting and regulating professional organizations
connected with the insurance and re-
insurance business;
(g) Levying fees and other charges for carrying out the purposes
of this Act;
(h) calling for information from, undertaking inspection of,
conducting enquiries and
investigations including audit of the insurers, intermediaries,
insurance intermediaries and
other organizations connected with the insurance business;
(i) control and regulation of the rates, advantages, terms and
conditions that may be offered by
insurers in respect of general insurance business not so
controlled and regulated by the Tariff
Advisory Committee under section 64U of the Insurance Act, 1938
(4 of 1938);
(j) Specifying the form and manner in which books of account
shall be maintained and
statement of accounts shall be rendered by insurers and other
insurance intermediaries;
(k) Regulating investment of funds by insurance companies;
(l) Regulating maintenance of margin of solvency;
(m) Adjudication of disputes between insurers and intermediaries
or insurance intermediaries;
(n) Supervising the functioning of the Tariff Advisory
Committee;
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 13
(o) Specifying the percentage of premium income of the insurer
to finance schemes for
promoting and regulating professional organizations referred to
in clause (f);
(p) Specifying the percentage of life insurance business and
general insurance business to be
undertaken by the insurer in the rural or social sector; and
(q) Exercising such other powers as may be prescribed
Insurance Regulatory and Development Authority (IRDA) in India
consists a Chairman and some
permanent and part time members in the administration. However,
the regulations are enacted
under the guidance of a statutory advisory committee.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 14
IRDA GUIDELINES FOR ULIP
IRDA has, from time to time, taken various initiatives for
protecting the interests of
policyholders by bringing out Regulations, Guidelines, Circulars
etc applicable to insurers and
intermediaries covering the various stages in the lifecycle of
an insurance product, commencing
from solicitation, sale, policy servicing, to claims servicing
and grievance redressal.
With expansion of the insurance sector and more and more
innovative insurance products, in
particular the Unit Linked Insurance Products coming into the
life insurance market, IRDA has
been sensitive to the changing scenario and the challenges that
go with it. In particular, IRDA
has been conscious of how these changes have been impacting the
policyholder and has taken
several steps to bring in changes in the regulatory framework to
address various concerns of
the policyholder.
IRDA had stipulated that insurers must provide the
prospect/policyholder all relevant
information regarding amounts deducted towards various charges
for each policy year so that
the prospect could take an informed decision. Insurers were
required to provide Benefit
Illustrations giving two scenarios of interest rates, 6% and 10%
respectively. The prospect was
required to sign on the illustration while signing the proposal
form. This was done to ensure
transparency and proper disclosures by the insurers.
It is necessary to demystify complex products and ensure that
proper product disclosures are
made to the prospect/policyholder. Towards this end, IRDA has
already come out with an
exposure draft on need to issue Key Features Documents.
Responses received by the Authority
are under examination and the initiative will be taken forward
further. Similarly, Needs Analysis
is another initiative identified by IRDA as a step in curbing
wrong advice and miss-selling. An
exposure draft on this requirement is already circulated and
responses are coming in. Whilst
on miss-selling, IRDA has identified Distance Marketing as yet
another area of concern and draft
guidelines in this regard have been put up as an exposure note
for all stakeholders to respond
to.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 15
Mention must be made of what is perhaps the most important step
that the Authority has
taken keeping in view the interests of policyholders. IRDA set
up an exclusive Consumer Affairs
Department that focuses on consumer related issues and
initiatives including grievance
redressal and consumer education through Insurance Awareness
Campaigns. With a view to
creating a central repository of industry-wide insurance
grievance data and facilitating
monitoring of disposal of grievances by insurers, IRDA is on the
verge of implementing the
Integrated Grievance Management System (IGMS). IGMS will not
only help monitor the redress
systems of insurers but also create a gateway for policyholders
to register complaints with
insurance companies first and if need be escalate them to the
IRDA Grievance Cells. The
Consumer Affairs department goes beyond facilitation and works
towards taking grievances to
their logical end by calling for explanations where required,
carrying out enquiries and
inspections etc. It is proposed to make the institution of the
Insurance Ombudsman handle all
types of complaints including those relating to policy sale and
servicing rather than just
restricting it to claims. IRDA is also shortly making its Call
Centre operational for policyholders
to lodge their grievances and also seek their status over
phone/e-mail.
Further, keeping in view the need for efficient functioning of
the insurance sector for protecting
the interests of policyholders, it is necessary to have
reliable, timely and accurate data relating
to insurance. In order to ensure that proper data is collected,
processed and disseminated in
the manner required, IRDA has set up an independent body, namely
the Insurance Information
Bureau (IIB). The IIB has started functioning and has already
made good progress.
RECENT REGULATORY INITIATIVES
More recently, IRDA has taken a holistic view of the features of
ULIPs and addressed issues
impacting the policyholders including the way such products are
sold/bought; how ULIPs can be
better financial instruments for providing risk coverage; how
sale by unlicensed personnel and
several other malpractices existing in this market may be curbed
by plugging legal loopholes
and tightening of the regulatory ambit; legal mandate to
initiate direct penal action against
Corporate Agents etc. IRDA therefore initiated exposure drafts
covering these areas and
received considerable feedback from various stakeholders on the
issues put forth. The issues
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 16
were then presented to and discussed with the members of the
Insurance Advisory Committee
as well as the members of the Board of the Authority. The
following regulatory initiatives have
been approved by the Authority during the Board meeting on
31.05.10.
I. Distribution channel related changes:
1. IRDA has amended the IRDA (Insurance Advertisements and
Disclosure) Regulations to
remove any scope for the involvement of unlicensed
personnel/entities in the sale of insurance
products.
2. IRDA has amended the IRDA (Licensing of Corporate Agents)
Regulations to further tighten
the Code of Conduct of corporate agents to ensure that the
prospect does not deal with any
unlicensed person. The Regulations have also been amended to
ensure that there is no scope
for any kind of remuneration other than commission where sale
has been affected. This
measure will reduce the expenses of the insurer, thereby
lowering premiums to be paid by the
policyholder.
3. Regulations for referrals: IRDA has also addressed the issue
of Referrals by bringing out
separate Regulations leaving no scope for misuse of the system.
Companies which wish to
share their database of customers with insurers would need to
get approval from IRDA after
having conformed to the requirements as laid down in the
Regulations. Further, there are
restrictions on the business activities of the referral company
to ensure that there is no misuse
of the system. For instance, the referral company shall not be
in any business of extending
loans and advances or accepting deposits etc though there are
exceptions such as for Regional
Rural Banks, Co-operative banks etc. The Regulations cast
obligations on the referral company
as well as the insurer including submission of data as and when
called for by the Authority.
II. ULIP STRUCTURE RELATED CHANGES:
(1) Lock in period increased to five years:
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 17
IRDA has increased the lock-in period for all Unit Linked
Products from three years to five years,
including top-up premiums, thereby making them long term
financial instruments which
basically provide risk protection.
(2) Level Paying Premiums:
Further, all regular premium /limited premium ULIPs shall have
uniform/level paying premiums.
Any additional payments shall be treated as single premium for
the purpose of insurance cover.
(3). Even Distribution of Charges:
Charges on ULIPs are mandated to be evenly distributed during
the lock in period, to ensure
that high front ending of expenses is eliminated.
(4). Minimum Premium Paying Term Of Five Years:
All limited premium unit linked insurance products, other than
single premium products shall
have premium paying term of at least five years.
(5). Increase In Risk Component:
Further, all unit linked products, other than pension and
annuity products shall provide a
mortality cover or a health cover thereby increasing the risk
cover component in such products.
The minimum mortality cover should be as follows:
Minimum Sum assured for age at entry of
below 45 years
Minimum Sum assured for age at entry of
45 years and above
Single Premium (SP) contracts: 125 percent
of single premium.
Regular Premium (RP) including limited
premium paying (LPP) contracts: 10 times the
annualized premiums or (0.5 X T X annualized
premium) whichever is higher. At no time
Single Premium (SP) contracts: 110 percent
of single premium
Regular Premium (RP) including limited
premium paying (LPP) contracts: 7 times the
annualized premiums or (0.25 X T X
annualized premium) whichever is higher.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 18
the death benefit shall be less than 105
percent of the total premiums (including top-
ups) paid.
At no time the death benefit shall be less
than 105 percent of the total premiums
(including top-ups) paid.
In case of whole life contracts, term (T) shall be taken as 70
minus age at entry
The minimum health cover per annum should be as follows:
Minimum annual health cover for age at
entry of below 45 years
Minimum annual health cover for age at
entry of 45 years and above
Regular Premium (RP) contracts: 5 times the
annualized premiums or Rs. 100,000 per
annum whichever is higher,
At no time the annual health cover shall be
less than 105 percent of the total premiums
paid.
Regular Premium (RP) contracts: 5times the
annualized premiums or Rs. 75,000 per
annum whichever is higher.
At no time the annual health cover shall be
less than 105 percent of the total premiums
paid.
(6). MINIMUM GUARANTEED RETURN FOR PENSION PRODUCTS:
As regards pension products, all ULIP pension/annuity products
shall offer a minimum
guaranteed return of 4.5% per annum or as specified by IRDA from
time to time. This will
protect the life time savings for the pensioners, from any
adverse fluctuations at the time of
maturity.
(7). RATIONALISATION OF CAP ON CHARGES:
With a view to smoothening the cap on charges, the capping been
rationalized to ensure
that the difference in yield is capped from the 5th year
onwards. This will not only reduce
the overall charges on these products, but also smoothen the
charge structure for the
policyholder.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 19
III. DISCONTINUANCE OF CHARGES:
IRDA has also addressed the issue of discontinuance of charges
for surrender of ULIPs. The
IRDA (Treatment of Discontinued Linked Insurance Policies)
Regulations brought out by
IRDA in this regard ensure that policyholders do not get
overcharged when they wish to
discontinue their policies for any emergency cash requirement.
The Regulations stipulate
that an insurer shall recover only the incurred acquisition
costs in the event of
discontinuance of policy and that these charges are not
excessive. The discontinuance
charges have been capped both as percentage of fund value and
premium and also in
absolute value. The Regulations also clearly define the Grace
Period for different modes of
premium payment. Upon discontinuance of a policy, a policyholder
shall be entitled to
exercise an option of either reviving the policy or completely
withdrawing from the policy
without any risk cover. Further, the regulations also enable
IRDA to order refund of
discontinuance charges in case they are found excessive on
enquiry.
These regulations are applicable to all new ULIP products
approved by IRDA after these
regulations are notified.
NEED FOR CHANGE IN GUIDELINES
THE CHANGE
Capping of charges on ULIPs, extension of lock-in period from 3
years to 5 years and raising of
minimum cover to 10 times the premium.
THE INTENT
The aim was to improve the returns for investors by reducing
charges and to ensure that ULIPs
are seen as long-term products. The hike in the minimum cover
stresses on the insurance
aspect of ULIPs, while the increase in minimum lock-in period
promotes the financial protection
facet.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 20
THE IMPACT
It is paradoxical that the most sold financial product is also
the one with the most problems.
ULIPs give you the best of both worlds by combining life
insurance and market-linked
investments.
They can help you create long-term wealth through investments in
equities. At least, that's the
marketing peg. The reality is that very few investors in ULIPs
understand what they have
bought. Most are unaware of the high charges levied in the
initial years. Nor do they realize
what the agent is up to when he says that they have to pay the
premium only for a few years.
On the face of it, it seems this change will only result in
higher returns for investors, but the
impact goes beyond this. To ensure that the difference is within
the suggested cap, insurance
firms will be forced to offer long-term plans.
The minimum sum assured has been hiked from five times the
annual premium to 10 times.
While this means higher cover for the policyholder, it also
means higher mortality charges.
However, keep in mind that to qualify for tax deduction under
the proposed Direct Taxes Code,
the death benefit needs to be 20 times the annual premium.
The most important point is that the new guidelines will ensure
investors look at ULIPs as long-
term products. The lock-in period has been increased from three
years to five years and the
minimum premium paying term has been increased to five years. No
longer will investors exit
after three years, which had benefited the broker more than
anyone else. This is likely to make
policyholders adopt a disciplined savings and investment
strategy.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 21
INTRODUCTION TO ULIPs AND MUTUAL FUNDs
ULIPs
A Unit Linked Insurance Plan (ULIP) is a product offered by
insurance companies that unlike a
pure insurance policy gives investors the benefits of both
insurance and investment under a
single integrated plan.
The first ULIP was launched in India in 1971 by Unit Trust of
India (UTI). With the Government
of India opening up the insurance sector to foreign investors in
2001 and the subsequent issue
of major guidelines for ULIPs by the Insurance Regulatory and
Development Authority (IRDA) in
2005, several insurance companies forayed into the ULIP business
leading to an over
abundance of ULIP schemes being launched to serve the investment
needs of those looking to
invest in an investment cum insurance product.
A ULIP is basically a combination of insurance as well as
investment. A part of the premium paid
is utilized to provide insurance cover to the policy holder
while the remaining portion is
invested in various equity and debt schemes. The money collected
by the insurance provider is
utilized to form a pool of fund that is used to invest in
various markets instruments (debt and
equity) in varying proportions just the way it is done for
mutual funds. Policy holders have the
option of selecting the type of funds (debt or equity) or a mix
of both based on their investment
need and appetite. Just the way it is for mutual funds, ULIP
policy holders are also allotted units
and each unit has a net asset value (NAV) that is declared on a
daily basis. The NAV is the value
based on which the net rate of returns on ULIPs are determined.
The NAV varies from one ULIP
to another based on market conditions and the funds
performance.
What types of funds do ULIP offer?
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.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 22
1) Equity Funds (Medium to High risk) - Primarily invested in
company stocks with the general
aim of capital appreciation
2) Income, Fixed Interest and Bond Funds (Medium risk) -
Invested in corporate bonds,
government securities and other fixed income instruments
3) Cash Funds (Low risk) - Sometimes known as Money Market Funds
invested in cash, bank
deposits and money market instruments
4) Balanced Funds (Medium risk) - Combining equity investment
with fixed interest instruments
MUTUAL FUNDS
A mutual fund is a type of professionally managed collective
investment vehicle that pools
money from many investors to purchase securities. While there is
no legal definition of the
term "mutual fund", it is most commonly applied only to those
collective investment vehicles
that are regulated and sold to the general public. They are
sometimes referred to as
"investment companies" or "registered investment companies."
Most mutual funds are "open-
ended," meaning investors can buy or sell shares of the fund at
any time. Hedge funds are not
considered a type of mutual fund.
The term mutual fund is less widely used outside of the United
States and Canada. For
collective investment vehicles outside of the United States, see
articles on specific types of
funds including open-ended investment companies, SICAVs,
unitized insurance funds, unit
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 23
trusts and Undertakings for Collective Investment in
Transferable Securities, which are usually
referred to by their acronym UCITS.
In the United States, mutual funds must be registered with the
Securities and Exchange
Commission, overseen by a board of directors (or board of
trustees if organized as a trust rather
than a corporation or partnership) and managed by a registered
investment adviser. Mutual
funds, like other registered investment companies, are also
subject to an extensive and detailed
regulatory regime set forth in the Investment Company Act of
1940. Mutual funds are not taxed
on their income and profits if they comply with certain
requirements under the U.S. Internal
Revenue Code.
Mutual funds have both advantages and disadvantages compared to
direct investing in
individual securities. They have a long history in the United
States. Today they play an
important role in household finances, most notably in retirement
planning.
Types of Mutual Funds
Open-end funds
Open-end mutual funds must be willing to buy back their shares
from their investors at the end
of every business day at the net asset value computed that day.
Most open-end funds also sell
shares to the public every business day; these shares are also
priced at net asset value. A
professional investment manager oversees the portfolio, buying
and selling securities as
appropriate. The total investment in the fund will vary based on
share purchases, share
redemptions and fluctuation in market valuation. There is no
legal limit on the number of
shares that can be issued.
Open-end funds are the most common type of mutual fund. At the
end of 2011, there were
7,581 open-end mutual funds in the United States with combined
assets of $11.6 trillion.
Closed-end funds
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 24
Closed-end funds generally issue shares to the public only once,
when they are created through
an initial public offering. Their shares are then listed for
trading on a stock exchange. Investors
who no longer wish to invest in the fund cannot sell their
shares back to the fund (as they can
with an open-end fund). Instead, they must sell their shares to
another investor in the market;
the price they receive may be significantly different from net
asset value. It may be at a
"premium" to net asset value (meaning that it is higher than net
asset value) or, more
commonly, at a "discount" to net asset value (meaning that it is
lower than net asset value). A
professional investment manager oversees the portfolio, buying
and selling securities as
appropriate.
At the end of 2011, there were 634 closed-end funds in the
United States with combined assets
of $239 billion.
Unit investment trusts
Unit investment trusts or UITs issue shares to the public only
once, when they are created. UITs
generally have a limited life span, established at creation.
Investors can redeem shares directly
with the fund at any time (as with an open-end fund) or wait to
redeem upon termination of
the trust. Less commonly, they can sell their shares in the open
market.
Unit investment trusts do not have a professional investment
manager. Their portfolio of
securities is established at the creation of the UIT and does
not change.
At the end of 2011, there were 6,022 UITs in the United States
with combined assets of $60
billion.
Exchange-traded funds
A relatively recent innovation, the exchange-traded fund or ETF
is often structured as an open-
end investment company, though ETFs may also be structured as
unit investment trusts,
partnerships, investments trust, grantor trusts or bonds (as an
exchange-traded note). ETFs
combine characteristics of both closed-end funds and open-end
funds. Like closed-end funds,
ETFs are traded throughout the day on a stock exchange at a
price determined by the market.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 25
However, as with open-end funds, investors normally receive a
price that is close to net asset
value. To keep the market price close to net asset value, ETFs
issue and redeem large blocks of
their shares with institutional investors.
Most ETFs are index funds. ETFs have been gaining in popularity.
At the end of 2011, there were
1,134 ETFs in the United States with combined assets of $1.1
trillion.
Investments and classification
Mutual funds are normally classified by their principal
investments, as described in the
prospectus and investment objective. The four main categories of
funds are money market
funds, bond or fixed income funds, stock or equity funds and
hybrid funds. Within these
categories, funds may be sub classified by investment objective,
investment approach or
specific focus. The SEC requires that mutual fund names not be
inconsistent with a fund's
investments. For example, the "ABC New Jersey Tax-Exempt Bond
Fund" would generally have
to invest, under normal circumstances, at least 80% of its
assets in bonds that are exempt from
federal income tax, from the alternative minimum tax and from
taxes in the state of New
Jersey.
Bond, stock and hybrid funds may be classified as either index
(passively managed) funds or
actively managed funds.
Money market funds
Money market funds invest in money market instruments, which are
fixed income securities
with a very short time to maturity and high credit quality.
Investors often use money market
funds as a substitute for bank savings accounts, though money
market funds are not
government insured, unlike bank savings accounts.
Money market funds strive to maintain a $1.00 per share net
asset value, meaning that
investors earn interest income from the fund but do not
experience capital gains or losses. If a
fund fails to maintain that $1.00 per share because its
securities have declined in value, it is said
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 26
to "break the buck". Only two money market funds have ever
broken the buck: Community
Banker's U.S. Government Money Market Fund in 1994 and the
Reserve Primary Fund in 2008.
At the end of 2011, money market funds accounted for 23% of
open-end fund assets.
Bond funds
Bond funds invest in fixed income or debt securities. Bond funds
can be sub classified according
to the specific types of bonds owned (such as high-yield or junk
bonds, investment-grade
corporate bonds, government bonds or municipal bonds) or by the
maturity of the bonds held
(short-, intermediate- or long-term). Bond funds may invest in
primarily U.S. securities
(domestic or U.S. funds), in both U.S. and foreign securities
(global or world funds), or primarily
foreign securities (international funds).
At the end of 2011, bond funds accounted for 25% of open-end
fund assets.
Stock or equity funds
Stock or equity funds invest in common stocks which represent an
ownership share (or equity)
in corporations. Stock funds may invest in primarily U.S.
securities (domestic or U.S. funds), in
both U.S. and foreign securities (global or world funds), or
primarily foreign securities
(international funds). They may focus on a specific industry or
sector.
A stock fund may be sub classified along two dimensions: (1)
market capitalization and (2)
investment style (i.e., growth vs. blend/core vs. value). The
two dimensions are often displayed
in a grid known as a "style box."
Market capitalization ("cap") indicates the size of the
companies in which a fund invests, based
on the value of the company's stock. Each company's market
capitalization equals the number
of shares outstanding times the market price of the stock.
Market capitalizations are typically
divided into the following categories:
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 27
1. Micro cap
2. Small cap
3. Mid cap
4. Large cap
While the specific definitions of each category vary with market
conditions, large cap stocks
generally have market capitalizations of at least $10 billion,
small cap stocks have market
capitalizations below $2 billion, and micro cap stocks have
market capitalizations below $300
million. Funds are also classified in these categories based on
the market caps of the stocks that
it holds.
Stock funds are also sub classified according to their
investment style: growth, value or blend
(or core). Growth funds seek to invest in stocks of fast-growing
companies. Value funds seek to
invest in stocks that appear cheaply priced. Blend funds are not
biased toward either growth or
value.
At the end of 2011, stock funds accounted for 46% of the assets
in all U.S. mutual funds.
Hybrid funds
Hybrid funds invest in both bonds and stocks or in convertible
securities. Balanced funds, asset
allocation funds, target date or target risk funds and lifecycle
or lifestyle funds are all types of
hybrid funds.
Hybrid funds may be structured as funds of funds, meaning that
they invest by buying shares in
other mutual funds that invest in securities. Most fund of funds
invest in affiliated funds
(meaning mutual funds managed by the same fund sponsor),
although some invest in
unaffiliated funds (meaning those managed by other fund
sponsors) or in a combination of the
two.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 28
OBJECTIVES
To understand the reason for which people prefer ULIP as one of
the best insurance
investment mode rather than Mutual fund.
To find the significance difference between people of different
income with that of
investment mode.
To Compare Investment Options of people in ULIPs and Mutual
Funds.
LIMITATIONS
The middle class people do not know basic concept of ULIP so
creating awareness is a
big challenge for me.
The finding of my research is from a small sample size.
Narrow minded thinking of middle class people as investment is
not their cup of tea.
Many customers are thinking that investment in share market is
very risky. As ULIP and
Mutual fund both are related to share market.
A general preference to LIC and SBI over private players.
Hesitations on the part of respondents to disclose financial
information.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 29
ADVANTAGES OF ULIP
Can easily rebalance your risk between equity and debt without
any tax implications.
Best suited for medium risk taking individuals who wish to
invest in equity and debt
funds (at least 40% or higher exposure to debt). No additional
tax burden for those
investing mainly in debt unlike in MFs.
RISKS ASSOCIATED WITH ULIPS
ULIPS as the name suggests are directly linked with the
investments made by the insured.
Though he does not have a direct say in this but he does offer
his choice in the form of
investment.
With stock markets soaring high a few months back, ULIPs were
offering a good rate of return,
but now with a sudden downfall of the stocks, ULIPs are bound to
become negative
investments.
At present, a policy-holder cannot understand the growth of his
investments vis--vis other
funds in the market, since there is no benchmark to measure one
fund against the other.
Usually a policy-holder could ask his investment in a ULIP to
be, for example, 55 per cent in
equity and 45 per cent in debt. These components can be mixed
according to his risk-taking
ability. An investor, therefore, would have to look at quarterly
statements, where the fund
would be compared with benchmarks. However, this may not be a
true representation of the
NAV, as the ULIP could be a mix of debt, liquid and equity
investments.
The reality is that most of the ULIPs take more than 5 years to
break even. Policies where the
costs are 65 per cent and upwards have not even recovered the
principal despite the strongest
bull market we have ever witnessed.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 30
ADVANTAGES OF MUTUAL FUNDS
The advantages of investing in a Mutual Fund are:
1. Professional Management: You avail of the services of
experienced and skilled professionals
who are backed by a dedicated investment research team which
analyses the performance and
prospects of companies and selects suitable investments to
achieve the objectives of the
scheme.
2. Diversification: Mutual Funds invest in a number of companies
across a broad cross section
of industries and sectors. This diversification reduces the risk
because seldom do all stocks
decline at the same time and in the same proportion. You achieve
this diversification through a
Mutual Fund with far less money than you can do on your own.
3. Convenient Administration: Investing in a Mutual Fund reduces
paperwork and helps you
avoid many problems such as bad deliveries, delayed payments and
unnecessary follow up with
brokers and companies. Mutual Funds save your time and make
investing easy and convenient.
4. Return Potential: Over a medium to long term, Mutual Funds
have the potential to provide a
higher return as they invest in a diversified basket of selected
securities.
5. Low Costs: Mutual Funds are a relatively less expensive way
to invest compared to directly
investing in the capital markets because the benefits of scale
in brokerage, custodial and other
fees translate into lower costs for investors.
6. Liquidity: In open-ended schemes, you can get your money back
promptly at Asset Value
(NAV) related prices from the Mutual Fund itself. With
close-ended schemes, you can sell your
units on a stock exchange at the prevailing market price or
avail of the facility of repurchase
through Mutual Funds at NAV related prices which some
close-ended and interval schemes
offer you periodically.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 31
7. Transparency: You get regular information on the value of
your investment in addition to
disclosure on the specific investments made by your scheme, the
proportion invested in each
class of assets and the fund managers investment strategy and
outlook.
8. Flexibility: Through features such as Systematic Investment
Plans (SIP), Systematic
Withdrawal Plans (SWP) and dividend reinvestment plans, you can
systematically invest or
withdraw funds according to your needs and convenience.
9. Choice of Schemes: Mutual Funds offer a variety of schemes to
suit your varying needs over
a lifetime.
10. Well Regulated: All Mutual Funds are registered with SEBI
and they function within the
provisions of strict regulations designed to protect the
interests of investors. The operations of
Mutual Funds are regularly monitored by SEBI.
DISADVANTAGES OF MUTUAL FUND
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 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.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 32
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.
In mutual fund also there is certain amount of risk-return
factor associated according to the
investment option these are as follows,
RISK RETURN
Equity High High
Balanced Medium Medium
Debt Low Low
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 33
REASON FOR COMPARISON
Comparison between ULIP plans and Mutual funds is made to create
awareness about various
investment tools. The overall goal of this project was to create
awareness about investments.
The Above problem arises because every life insurance company
has their products having
different positive and negative aspects.
Life Insurance is booming sector in todays economy. So the
responsibilities of the insurance
companies have been increased as compare to the past. Because in
past people were taking
insurance policies for protection tool only. In present scenario
insurance sector is providing
more services with the basic life insurance. Today people want
more services and more return
on their investment.
By doing this type of study in this Insurance sector and looking
at the vast scope and
opportunity to study this booming field of Life Insurance and
the growing awareness among the
public regarding insuring their life through Life insurance
policies as well as the growing
contribution of Insurance in GDP of country with the number of
private players making
entrance in this booming industry of Insurance.
A Mutual Fund is a trust that pools the savings of a number of
investors who share a common
financial goal. The money thus collected is then invested in
capital market instruments such as
shares, debentures and other securities. 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.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 34
COMPARISON OF ULIP VS MUTUAL FUND
Unit Linked Insurance Policies (ULIPs) as an investment avenue
are closest to mutual funds in
terms of their structure and functioning. As is the cases with
mutual funds, investors in ULIPs
are allotted units by the insurance company and a net asset
value (NAV) is declared for the
same on a daily basis.
Similarly ULIP investors have the option of investing across
various schemes similar to the 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.
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 counterparts.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 35
2. Expenses
In mutual fund investments, expenses charged for various
activities like fund management,
sales and marketing, administration among others are subject to
pre-determined upper limits
as prescribed by the Securities and Exchange Board of India.
For example equity-oriented funds can charge their investors a
maximum of 2.5% per annum
on a recurring basis for all their expenses; any expense above
the prescribed limit is borne by
the fund house and not the investors.
Similarly funds also charge their investors entry and exit loads
(in most cases, either is
applicable). Entry loads are charged at the timing of making an
investment while the exit load is
charged at the time of sale.
Insurance companies have a free hand in levying expenses on
their ULIP products with no upper
limits being prescribed by the regulator, i.e. the Insurance
Regulatory and Development
Authority. This explains the complex and at times 'unwieldy'
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.
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.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 36
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 funds
segment and ULIPs segment are largely
comparable. For example plans that invest their entire corpus in
equities (diversified equity
funds), a 60:40 allotment in equity and debt instruments
(balanced funds) and those investing
only in debt instruments (debt funds) can be found in both ULIPs
and mutual funds.
If a mutual fund investor in a diversified equity fund wishes to
shift his corpus into a debt from
the same fund house, he could have to bear an exit load and/or
entry load.
On the other hand most insurance companies permit their ULIP
inventors to shift investments
across various plans/asset classes either at a nominal or no
cost (usually, a couple of switches
are allowed free of charge every year and a cost has to be borne
for additional switches).
Effectively the ULIP investor is given the option to invest
across asset classes as per his
convenience in a cost-effective manner.
This can prove to be very useful for investors, for example in a
bull market when the ULIP
investor's equity component has appreciated, he can book profits
by simply transferring the
requisite amount to a debt-oriented plan.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 37
5. Tax benefits
ULIP investments qualify for deductions under Section 80C of the
Income Tax Act. This holds
good faith 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 (for example
diversified equity funds, balanced funds), if the investments
are held for a period over 12
months, the gains are tax free; conversely investments sold
within a 12-month period attract
short-term capital gains tax @ 10%.
Similarly, debt-oriented funds attract a long-term capital gains
tax @ 10%, while a short-term
capital gain is taxed at the investor's marginal tax rate.
Despite the seemingly similar structures evidently both mutual
funds and ULIPs have their
unique set of advantages to offer. As always, it is vital for
investors to be aware of the nuances
in both offerings and make informed decisions.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 38
QUESTIONNAIRE
PERSONNAL INFORMATION
1. Name:
2. Gender:
(a) Male (a) Female
3. Marital status:
(a) Married (b) Unmarried
4. Age:
(a) 20-30 (b) 30-40
(c) 40-50 (d) 50-60
(e) 60-70
5. Occupation:
(a) Government (b) Private Service
(c) Business (d) NRIs
(e) Others
6. Annual Income:
(a) Below 2 lakhs (b) 2-4 lakhs
(c) 4- 6 lakhs (d) 6-8 lakhs
(e) Above 8 lakhs
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 39
1. Sources that helps you in making the investment
decisions.
(a) Financial journal (b) Television
(c) Brokers or agents (d) Friends
(e) Consultants
2. Factors that influence your investment decisions in a
particular company.
(a) Attractive schemes (b) Tax benefits
(c) High reputation (d) Rate of return
(e) Variety of products
3. You generally like to invest money in.
(a) Insurance (b) Stock Market
(c) Mutual Fund (d) Bank deposits
(e) Both insurance and mutual fund
4. I would like to invest money in ULIPs.
(a) Strongly agree (b) Agree
(c) Neutral (d) Disagree
(e) Strongly disagree
5. Reason for choosing ULIPs because of insurance coverage.
(a) Strongly agree (b) Agree
(c) Neutral (d) Disagree
(e) Strongly disagree
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 40
6. I would like to invest money in Mutual Funds.
(a) Strongly agree (b) Agree
(c) Neutral (d) Disagree
(e) Strongly disagree
7. Mutual funds are more risky than ULIP products.
(a) Strongly agree (b) Agree
(c) Neutral (d) Disagree
(e) Strongly disagree
8. ULIPs have advantage over Mutual funds.
(a) Strongly agree (b) Agree
(c) Neutral (d) Disagree
(e) Strongly disagree
Do you view following factors/sources of information important
while investing in ULIP.
Strongly Agree Agree Neutral Disagree Strongly disagree
(9) Safety
(10) Rate of Return
(11) Tax Savings
(12) Past schemes Performance
(13) Advertisement
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 41
Do you view following factors/sources of information important
while investing in Mutual
Funds.
Strongly agree Agree Neutral Disagree Strongly disagree
(14) Safety Factor
(15) Liquidity
(16) Rate of Return
(17) Past schemes
Performance
(18) Advertisement
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 42
DATA INTERPRETATION AND ANALYSIS
(A) Gender:
Gender
Frequency Percent Valid Percent Cumulative Percent
Valid Married 37 74.0 74.0 74.0
Unmarried 13 26.0 26.0 100.0
Total 50 100.0 100.0
INTERPRETATION: The above graph shows that out of 50 samples,
74% of the respondents are
male and the rest 26% are female.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 43
(B) Marital Status:
Marital
Frequency Percent Valid Percent Cumulative Percent
Valid Married 33 66.0 66.0 66.0
Unmarried 17 34.0 34.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 66% of the respondents are
unmarried and the rest
34% are married.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 44
(C) Age:
Age
Frequency Percent Valid Percent Cumulative Percent
Valid 20-30 6 12.0 12.0 12.0
30-40 14 28.0 28.0 40.0
40-50 17 34.0 34.0 74.0
50-60 11 22.0 22.0 96.0
60-70 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION: The graph shows that majority of the sample
respondents were in the age
group of 40-50 yrs ie,34%, 12% were in the age group of 20-30
yrs & 28% of them were 30-40
yrs, 22% were in the age group of 50-60 yrs and 4% were in the
age group of 60-70 yrs.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 45
(D) Occupation:
Occupation
Frequency Percent Valid Percent Cumulative Percent
Valid Government 18 36.0 36.0 36.0
Private service 14 28.0 28.0 64.0
Business 11 22.0 22.0 86.0
NRIs 3 6.0 6.0 92.0
Others 4 8.0 8.0 100.0
Total 50 100.0 100.0
INTERPRETATION: The graph shows that majority of the respondents
are working in the
Government sector i.e.36%, 28% of them are engaged in Private
services, 22% of them are
business field, 6% of them are NRIs and 8% of them are engaged
in other works.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 46
(E) Annual Income:
Annual income
Frequency Percent Valid Percent Cumulative Percent
Valid Below 2 lakhs 19 38.0 38.0 38.0
2-4 lakhs 23 46.0 46.0 84.0
4-6 lakhs 6 12.0 12.0 96.0
6-8 lakhs 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION: The graph shows that 46% of the respondents get
a salary of 2-4 lakhs, 38%
of the respondents get a salary below 2 lakhs, and 12% of the
respondents get a salary of 4-6
lakhs and 4% of them above 6-8 lakhs.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 47
1. Sources that helps you in making investment decision.
Sources that helps you in making the investment decisions.
Frequency Percent Valid Percent Cumulative Percent
Valid Financial journal 5 10.0 10.0 10.0
Television 2 4.0 4.0 14.0
Brokers/Agent 27 54.0 54.0 68.0
Friends 13 26.0 26.0 94.0
Consultants 3 6.0 6.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From the sample of 50, 54% of the respondents
strongly agree that the
agents or brokers helps them to make investment decision, 26% of
the respondents point out
their friends take part in the investment decision. And 10% of
the respondents reveal that the
financial journals help them, Remaining 6% is from consultants,
and 4% selects television as the
source.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 48
2. Factors that influence your investment decision in a
particular company.
Factors that influence your investment decisions in a particular
company.
Frequency Percent Valid Percent Cumulative Percent
Valid Attractive schemes 2 4.0 4.0 4.0
Tax benefits 27 54.0 54.0 58.0
High reputation 3 6.0 6.0 64.0
Rate of return 14 28.0 28.0 92.0
Variety of products 4 8.0 8.0 100.0
Total 50 100.0 100.0
INTERPRETATION: 54% of respondents agree that the tax benefit
influence them to buy policy,
28% looks the rate of return what they will earn, variety of
products from the company attracts
8% customers, and high reputation of the company attracts 6% of
the customers, and
remaining 4% pointing out the attractive schemes.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 49
3. You generally like to invest money in.
You generally like to invest money.
Frequency Percent Valid Percent Cumulative Percent
Valid Insurance 13 26.0 26.0 26.0
Stock market 1 2.0 2.0 28.0
Mutual fund 6 12.0 12.0 40.0
Bank deposit 28 56.0 56.0 96.0
Both insurance and mutual fund 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 56% of the respondents
invest money in bank deposit,
26% in insurance sector, 12% in mutual fund, then 4% in both
insurance and mutual fund, and
remaining 2% in stock market.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 50
4. I would like to invest money in ULIP.
I would like to invest money in ULIP.
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 2 4.0 4.0 4.0
Agree 33 66.0 66.0 70.0
Neutral 8 16.0 16.0 86.0
Disagree 5 10.0 10.0 96.0
Strongly disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 66% agree, 4% of them
strongly supporting that fact,
and 16% has no opinion about it. And 4% strongly disagreed;
remaining 10% also disagree with
investment in ULIP.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 51
5. Reason for choosing ULIPs because of insurance coverage.
Reason for choosing ULIPs because of insurance coverage.
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 14 28.0 28.0 28.0
Agree 32 64.0 64.0 92.0
Neutral 2 4.0 4.0 96.0
Disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 64% of the respondents
agree, 28% of them strongly
support it, 4% didnt say anything, and remaining 4% disagree
with that fact. So we can see that
most of the respondents choose ULIP because of insurance
coverage.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 52
6. I would like to invest money in Mutual Funds.
I would like to invest money in mutual funds.
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 3 6.0 6.0 6.0
Agree 13 26.0 26.0 32.0
Neutral 14 28.0 28.0 60.0
Disagree 18 36.0 36.0 96.0
Strongly disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 26% of the respondents
agree with that fact, 6% of
them strongly support it, 28% have no idea about it, and
remaining 10% disagreed, out of this
10%, 4% strongly disagreed with it.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 53
7. Mutual funds are more risky than ULIP products.
Mutual funds are more risky than ULIP products.
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 17 34.0 34.0 34.0
Agree 27 54.0 54.0 88.0
Neutral 4 8.0 8.0 96.0
disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 54% of the respondents
think that mutual funds are
more risky than ULIP products, 34% strongly agree with this
statement. 8% of them have no
opinion about it, and remaining 4% disagree with it.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 54
8. ULIPs have advantage over Mutual funds.
ULIP have advantage over mutual funds.
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 12 24.0 24.0 24.0
Agree 31 62.0 62.0 86.0
Neutral 5 10.0 10.0 96.0
Disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION: 62% of the respondents agree with ULIP have
advantage over mutual fund
statement. 24% of them strongly agree with this fact. 4% of do
not support the statement. And
remaining 10% have no opinion about it.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 55
9. Do you think the safety factor is important in your
investment in ULIP.
Safety
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 4 8.0 8.0 8.0
Agree 26 52.0 52.0 60.0
Neutral 2 4.0 4.0 64.0
Disagree 15 30.0 30.0 94.0
Strongly disagree 3 6.0 6.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 52% of the respondents
agree, 8% strongly agree, 30%
disagree with that fact, 6% strongly disagree, and remaining 4%
have no opinion about safety
factor is Important in the investment of ULIP.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 56
10. Do you think the Rate of return factor is important in your
investment in ULIP.
Rate of return
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 6 12.0 12.0 12.0
Agree 21 42.0 42.0 54.0
Neutral 3 6.0 6.0 60.0
Disagree 12 24.0 24.0 84.0
Strongly disagree 8 16.0 16.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, majority of the respondents
agree i.e. 42%, 12%
strongly agree with that fact, 24% disagree, 16% strongly
disagree, and remaining 6% neither
agree nor disagree with that statement.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 57
11. Do you think the Tax savings is influence your investment
decision in ULIP.
Tax savings
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 6 12.0 12.0 12.0
Agree 21 42.0 42.0 54.0
Neutral 5 10.0 10.0 64.0
Disagree 16 32.0 32.0 96.0
Strongly disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, majority of the respondents
agree i.e. 42%, 12%
strongly agree with that fact, 32% disagree, 4% strongly
disagree, and remaining 10% neither
agree nor disagree with that statement.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 58
12. Past schemes performance influence your investment decision
in ULIP.
past scheme's performance
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 8 16.0 16.0 16.0
Agree 8 16.0 16.0 32.0
Neutral 7 14.0 14.0 46.0
Disagree 23 46.0 46.0 92.0
Strongly disagree 4 8.0 8.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, majority of the respondents
disagree i.e. 46%, 8%
strongly disagree with that fact, 16% strongly agree, 16% agree,
and remaining 14% neither
agree nor disagree with that statement.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 59
13. Advertisement influences the investment decision in
ULIP.
Advertisement
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 9 18.0 18.0 18.0
Agree 11 22.0 22.0 40.0
Neutral 19 38.0 38.0 78.0
Disagree 5 10.0 10.0 88.0
Strongly disagree 6 12.0 12.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 22% agree, 18% strongly
agree with that fact, 10%
disagree, 12% strongly disagree, and remaining 38% neither agree
nor disagree with that
statement.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 60
14. Do you think the safety factor is important in your
investment in Mutual Fund.
Safety
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 2 4.0 4.0 4.0
Agree 4 8.0 8.0 12.0
Neutral 8 16.0 16.0 28.0
Disagree 30 60.0 60.0 88.0
Strongly disagree 6 12.0 12.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 8% respondents agree, 4%
strongly agree, 60%
disagree with that fact, 12% strongly disagree, and remaining
16% have no opinion about
safety factor is important in the investment of mutual fund.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 61
15. Do you think the Liquidity factor is important in your
investment in mutual fund?
Liquidity
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 7 14.0 14.0 14.0
Agree 19 38.0 38.0 52.0
Neutral 15 30.0 30.0 82.0
Disagree 6 12.0 12.0 94.0
Strongly disagree 3 6.0 6.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, majority of the respondents
agree i.e. 38%, 14%
strongly agree with that fact, 12% disagree, 6% strongly
disagree, and remaining 30% neither
agree nor disagree with that statement.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 62
16. Do you think the Rate of return factor is important in your
investment in mutual fund?
Rate of return
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 2 4.0 4.0 4.0
Agree 7 14.0 14.0 18.0
Neutral 21 42.0 42.0 60.0
Disagree 15 30.0 30.0 90.0
Strongly disagree 5 10.0 10.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 30% disagree, 10% strongly
disagree with that fact,
14% agree, 4% strongly agree, and remaining 42% neither agree
nor disagree with that
statement.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 63
17. Past schemes performance influence your investment decision
in mutual fund.
Past scheme's performance
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 6 12.0 12.0 12.0
Agree 22 44.0 44.0 56.0
Neutral 15 30.0 30.0 86.0
Disagree 7 14.0 14.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 44% agree, 12% strongly
agree with that fact, 14%
disagree, and remaining 30% neither agree nor disagree with that
statement.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 64
18. Advertisement influences the investment decision in mutual
fund.
Advertisement
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly agree 4 8.0 8.0 8.0
Agree 16 32.0 32.0 40.0
Neutral 24 48.0 48.0 88.0
Disagree 4 8.0 8.0 96.0
Strongly disagree 2 4.0 4.0 100.0
Total 50 100.0 100.0
INTERPRETATION: From a sample of 50, 8% strongly agree, 32%
agree with that fact, 8%
strongly disagree, 4% disagree, and remaining 24% neither agree
nor disagree with that
statement.
-
INDIAN INSTITUTE OF PLANNING AND MANAGEMENT
SS/PGP/ISBE/11-13 SS/11-13/F/252/AHMEDABAD/ISBE Page 65
FINDINGS AND SUGGESTIONS
After survey there are some findings and suggestions as
follows.
As insurance sector is growing rapidly so most of the life
insurance players are selling
ULIP plans. And the awareness about ULIP is growing most of the
people knows the ULIP
of life insurance. Since last 4-5 years the returns provided by
ULIP were very good so
people tend more towards ULIP.
Middle class people who are interested in investment but they
are not aware of such
options, s